Fifth Circuit Sounds The Death Knell For BSEE Jurisdiction Over Offshore Contractors

Since October 2011, when the Bureau of Safety and Environmental Enforcement (BSEE) issued its first-ever Incidents of Non-Compliance (INCs) against offshore contractors (Halliburton and Transocean) in the wake of the DEEPWATER HORIZON blowout, the offshore industry and BSEE have been engaged in a literal “war of words” over a simple question of statutory and regulatory construction: does BSEE’s authority under the Outer Continental Shelf Lands Act (OCSLA) and the regulations promulgated thereunder extend to offshore contractors?  This blog has followed the pitched battles along the way, from the first volley of BSEE’s initial issuance of the INCs to Halliburton/Transocean, through its continuing sorties under its self-proclaimed jurisdiction over contractors across the OCS, and (most recently) its checkered retreat into the appellate court after two different district courts rejected its positions and sided with offshore contractors.

These relatively minor skirmishes culminated in a decision issued by the United States Fifth Circuit Court of Appeals on September 27, 2017 in USA v. Black Elk Energy Offshore, Case No. 16-30561  (5th Cir., Sept. 27, 2017), which confirmed once and for all (pending a potential final offensive in the Supreme Court of the United States) that BSEE does not have regulatory enforcement jurisdiction over offshore contractors: “the OCLSA regulations do not apply [to offshore contractors].”  In short, the Fifth Circuit in Black Elk held that the plain language of BSEE’s primary regulation (30 C.F.R. §250.105) defining its safety-regulatory jurisdiction (which authorizes enforcement only against the group of entities included within the defined term “You” in the regulation) does not include offshore contractors:  “Section 250.105 unambiguously defines ‘You’ to mean ‘a lessee, the owner or holder of operating rights, a designated operator or agent of the lessee(s), a pipeline right-of-way holder, or a State lessee granted a right-of use and easement[,]” [and] [t]his definition excludes contractors.”  Black Elk, at p. 11.  The court further bolstered this plain-language reading by noting that for essentially six decades, BSEE itself (and its predecessors) in prior regulatory statements, and the regulatory history of §250.105, expressly indicated that offshore contractors would not be subject to BSEE’s safety requirements:

[T]he drafting history of the definition of “You” undermines the government’s recently coined interpretation. In 1998, BSEE proposed to rephrase Part 250 in plain English, replacing the term “lessee” with “You.” A comment submitted during rulemaking sought to define “You” to include “any person an MMS order or decision may adversely impact.” Postlease Operations Safety, 64 Fed. Reg. 72756, 72758 (Dec. 28, 1999). As the appellees note, this proposed language would have extended the definition of “You” to contractors. Because complex, overlapping cross-indemnity provisions are an inherent feature throughout the oil and gas industry, actions taken against lessees could adversely impact multiple layers of contractors and subcontractors that might have been swept into this broader proposed definition of “You.” But BSEE rejected this comment and its proposed language in favor of a definition limited to lessee/permittee/designated operator responsibility.

Until very recently, public statements by the regulating agencies confirmed that the regulations do not apply to contractors. In March 2011, BSEE promulgated a new “Safety and Environmental Management Systems” rule designed to respond to the Deepwater Horizon incident and spill. The agency conducted a public workshop for oil and gas companies and advertised in bold, fully capitalized, underlined text that “30 CFR 250.105 defines ‘YOU’ . . . This definition DOES NOT include a CONTRACTOR.” Further, when publishing the final rule, BSEE stated that it “does not regulate contractors; we regulate operators.” 75 Fed. Reg. 63610, 63616 (Oct. 15, 2010). The government asserts that these statements were issued in connection with different rules applicable only to leaseholders and operators, but we are unpersuaded. The new rule pertains as much to safety and the environment as the regulations these appellees are charged with violating.

The consistency of over sixty years’ prior administrative practice in eschewing direct regulatory control over contractors, subcontractors and individual employees supports the district court’s conclusion that these regulations do not apply [to offshore contractors].

Black Elk, pp. 13-14.  Moreover, the court noted that in addition to this “half century of agency policy” contrary to BSEE’s self-proclaimed jurisdiction over contractors, BSEE’s own recent regulatory actions undercut any argument that contractors were meant to be covered by prior regulations: “when BSEE has promulgated recent regulations, it has gone out of its way to specifically include contractors and subcontractors within the regulatory purview” – which would not be necessary if contractors were already somehow included.  In short, the Fifth Circuit adopted (in one form or another) all the arguments interposed in the lower courts (as discussed in detail here) against BSEE’s claim of jurisdiction over contractors.  Id. at p. 18, 20.

Notably, the Black Elk decision (as explained in a prior post) ostensibly concerned only BSEE’s criminal jurisdiction over contractors.  A parallel case, Island Operating Co. v. Jewell et al., Case No. 16-145 (W.D. La. Dec. 23, 2016) – which the Fifth Circuit’s Black Elk decision cited with approval (Black Elk, p. 9) – concerned BSEE’s civil jurisdiction over contractors – i.e. its ability to issue INCs and civil monetary penalties for alleged violation of BSEE safety regulations.  Both lower courts, in each context, held that BSEE has no jurisdiction over contractors (criminal or civil), and BSEE appealed both outcomes.  Notably, however, the parties to the Island Operating appeal agreed to a stay of the appellate proceedings pending the Fifth Circuit’s criminal-context decision in Black Elk.  Thus, the civil-context decision in Island Operating is still technically pending, and ostensibly the Fifth Circuit will need to issue a separate decision regarding BSEE’s civil jurisdiction. That said, the final footnote in the Black Elk Decision leaves little doubt that the Fifth Circuit is keenly aware of the practical on-the-ground effects of BSEE’s unilateral and unprecedented claim of civil enforcement jurisdiction over contractors:

[BSEE’s] new position is hardly entitled to deference in the civil context . . . In the civil [enforcement] context, there are grave implications of the new policy for contractors, who heretofore have had no need to price their services according to the regulatory risk; no ability to engage insurance protection for regulatory violations; no need to personally review and apply the exact regulations (because they followed the directives of the designated operator or lessee); and no incentive to impose themselves in the offshore workplace as self-protection against others’ potential regulatory violations.

Moreover, it should be noted that while the court stated that “there [was] much to be said for” contractor’s arguments that the enabling OCSLA statutes do not apply at all to contractors,  it did not ultimately adopt those arguments in its holding.  Specifically, the court acknowledged the contention by contractors that the plain language of the enabling statute for BSEE’s OCSLA regulatory authority (43 U.S.C. §1348), as well as its legislative history, does not extend jurisdiction to contractors:

“Because section 1348(b) specifically imposes a duty on lessees and permittees, and equally specifically references but does not impose its regulatory duties on contractors and subcontractors [emphasis added], the latter parties are textually excluded from those duties. . . That section 1348(b) excludes contractors and subcontractors from direct regulatory control under OCSLA is reinforced in the provision’s drafting history. When enacting the provision that became section 1348 in 1977, Congress rejected language that would have extended the safety and environmental duties it imposed on lessees and permit holders to render them liable “jointly with any employer or subcontractor . . . . “

Id. at pp. 8, 9 n. 7.  Despite the court’s approving discussion of these contentions, the court ultimately held that it did not “need [to] decide whether OCSLA’s criminal liability provision could [emphasis added] extend to contractors, subcontractors and their employees,” given that the regulations in place at the relevant time did not apply in any event.  This, ostensibly, could leave open the door to BSEE to attempt to rewrite its regulations to specifically include contractors, which would in turn potentially force the courts to address the question expressly left open in Black Elk of whether the OCSLA enabling statute itself reaches contractors.

Subject to this potential for a future battle directly on the statutory language, the Fifth Circuit’s Black Elk decision appears to be a coup de grace for both the criminal and civil enforcement questions for the time being.  Specifically, the court expressly acknowledged that while it was only squarely faced with the question of whether BSEE’s criminal indictments in the case were valid, this question necessarily implicated whether BSEE’s regulations even applied at all (criminally or civilly) to offshore contractors:

To resolve this appeal, however, we need not decide whether OCSLA’s criminal liability provision could extend to contractors, subcontractors and their employees. If OCSLA regulations in force at the time of the incident do not apply to the appellees, they cannot be held criminally liable even if the statute authorizes regulations that could foist criminal liability upon them. Consequently, we assume arguendo, without deciding, that section [BSEE regulations] may expose contractors and subcontractors to criminal liability, and move on to the issue of whether the regulations can support this criminal indictment.

In other words, while the issue before the Fifth Circuit in Black Elk was only criminal jurisdiction, the court found that it had to answer the more fundamental question of whether BSEE’s regulations apply at all to offshore contractors before it could reach the specific question of criminal liability.

As a result, and as a practical matter, the Black Elk panel’s decision will (presumably) simply be adopted wholesale by the panel in the Island Operating case, which (to reiterate) was already stayed to await the outcome of Black Elk.  It is somewhat curious that the Black Elk court chose to issue such a broad and sweeping opinion – arguably beyond the discrete scope of the actual case and controversy at issue viz. BSEE’s criminal jurisdiction – that effectively subsumes the issue pending before another Fifth Circuit panel.  Nonetheless, the detailed analysis by the Black Elk court concerns (effectively) the same issues underlying the appeal in Island Operating.  Thus, it appears that the Black Elk court’s opinion has fully and finally defeated (for now) BSEE’s self-proclaimed, newly minted extension of jurisdiction over offshore contractors.  And pending any further review in the Supreme Court (which is relatively unlikely, given that the Supreme Court tends to only review cases where federal circuits disagree, and given that the Fifth Circuit is the only federal circuit with any significant jurisprudence regarding offshore law), BSEE’s “universal thump” will no longer be passed ’round.