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Return to the Tidelands – Supreme Court Upholds Application of Federal Law on the Outer Continental Shelf in the Face of Parallel State Law

In a rare decision applying the Outer Continental Shelf Lands Act (43 U.S.C. §1331 et seq.(“OCSLA”), the United States Supreme Court has clarified, re-affirmed and perhaps (given the breadth of its opinion) expanded the exclusive application of federal law on the OCS. This decision comes in the midst of a flurry of maritime/maritime-related writ grants in the current term (Newton, Batterton, Thacker, Devries, and ATHOS I) all of which we will be tracking here on Striding the Quarterdeck. This decision may upend decades of jurisprudence in the Fifth Circuit regarding contractual indemnity.

In Parker Drilling Management Services, Ltd. v. Newton, 587 U.S. — (2019), Justice Thomas delivered the unanimous opinion of the Court on the discrete issue of whether California’s minimum wage laws (which are more expansive and worker-friendly than the Fair Labor Standards Acts (“FLSA”) viz. overtime pay) applies to workers on OCS platforms (who were paid for their 12 hours on-shift consistent with the FLSA, but were seeking overtime pay for their standby off-shift time on the platform as would be required under California law, but not the FLSA). The Court held that the FLSA exclusively applied on the OCS, but its expansive and broad-ranging analysis in reaching this discrete holding portends a much broader exclusivity of federal law on the OCS.

The relevant provision of OCSLA (§1333(a)(2)(A)) provides that state laws apply as surrogate federal law on OCS installations “[t]o the extent that they are [1] applicable and [2] not inconsistent with [federal law and regulations].” The Supreme Court granted writs to resolve a split between the Fifth and Ninth Circuit. The Ninth Circuit’s rule in Newton (reversing the lower court and finding that California law did in fact apply) held that state laws are “inconsistent” with federal law whenever they are “mutually incompatible, incongruous, [or] inharmonious” with federal law. To the contrary, the Fifth Circuit’s rule (which the district court had followed in finding the California wage laws not applicable) held that state laws applies on the OCS “only to the extent it is necessary to fill a significant void or gap in federal law.” In short, the Ninth Circuit rule would elevate state law whenever a parallel federal law was involved; whereas the Fifth Circuit would elevate state law only when federal law is totally silent.

Justice Thomas’s opinion ultimately rejected the Ninth Circuit rule in favor of a much broader application of federal law on the OCS, to the exclusion of state law – and arguably even broader than the Fifth Circuit’s “gap filling” rule. The Court established the new rule as follows: “All law on the OCS is federal, and state law serves a supporting role, to be adopted only where there is a gap in federal law’s coverage…[;] if a federal law addresses the issue at hand, then state law is not adopted as federal law on the OCS.”

The Court’s Analysis

In this analysis, Justice Thomas hearkened back to the so-called Tidelands Cases, a series of suits brought by the United States against various coastal states (California, Louisiana, et al.) concerning whether the federal or state sovereigns owned the submerged land seaward of the coast, which had recently become extremely valuable with the advent of offshore oil discoveries. These cases – the only cases ever brought within the original first-instance jurisdiction of the Supreme Court – are chronicled extensively and fascinatingly by Aaron L. Shalowitz in Shore and Sea Boundaries, available for free online via the National Oceanographic and Atmospheric Administration’s nautical charting website. The first of these Tidelands Cases concluded that the continental shelf (as defined by various boundaries particular to individual states) is within the exclusive sovereignty and control of the federal government.   In turn, to flesh out the administration of this exclusively federal zone, Congress enacted the OCSLA.

Justice Thomas writing for the Court emphasized that OSCLA §1331(a)(1) extends “the Constitution and laws and civil and political jurisdiction of the United States” to the OCS, with federal laws applicable “to the same extent as if the [OCS] were an area of exclusive Federal jurisdiction located within a State.” Only after this initial broad and unequivocal establishment of federal sovereignty and legal preeminence on the OCS does the “applicable/not inconsistent” provision of §1332(a)(2) appear.

From here, the Court essentially determined that “the terms ‘applicable’ and ‘not inconsistent’ are susceptible of interpretations that would deprive one term or the other of meaning,” and thus “the two terms standing alone do not resolve the question” of how §1332(a)(2) should be applied. In short, the statutory language alone was ambiguous. Thus, the Court took a holistic approach and considered the question in light of the OCSLA as a whole:

Our pre-OCSLA decisions made clear that the Federal Government controlled the OCS in every respect, and the OCSLA reaffirmed the central role of federal law on the OCS…. Accordingly, the only law on the OCS is federal law, and state laws are adopted as federal law only “[t]o the extent that they are applicable and not inconsistent with” federal law. §1333(a)(2)(A).

Taken together, these provisions convince us that state laws can be “applicable and not inconsistent” with federal law under §1333(a)(2)(A) only if federal law does not address the relevant issue. As we have said before, the OCSLA makes apparent “that federal law is ‘exclusive’ in its regulation of [the OCS], and that state law is adopted only as surrogate federal law. The OCSLA extends all federal law to the OCS, and instead of also extending state law writ large, it borrows only certain state laws. These laws, in turn, are declared to be federal law and are administered by federal officials. Given the primacy of federal law on the OCS and the limited role of state law, it would make little sense to treat the OCS as a mere extension of the adjacent State, where state law applies unless it conflicts with federal law.

In this regard, the Court specifically differentiated the typical preemption analysis – i.e. determining which law applies when federal and state law directly overlap – from what is necessary under OCLSA where there is no overlap at all:

[The] OCS is not, and never was, part of a State, so state law has never applied of its own force. Because federal law is the only law on the OCS, and there has never been overlapping state and federal jurisdiction there, the statute’s reference to “not inconsistent” state laws does not present the ordinary question in preemption cases—i.e., whether a conflict exists between federal and state law. Instead, the question is whether federal law has already addressed the relevant issue; if so, state law addressing the same issue would necessarily be inconsistent with existing federal law and cannot be adopted as surrogate federal law. Put another way, to the extent federal law applies to a particular issue, state law is inapplicable.

As a further analogous support for this conclusion, the Court noted that OCSLA establishes the OCS as “an area of exclusive Federal jurisdiction located within a State – i.e. an upland federal enclave.” And generally, “when an area in a State becomes a federal enclave, only the state law in effect at the time of the transfer of jurisdiction continues in force[;] [e]xisting state law typically does not continue in force… to the extent it conflicts with federal policy…[a]nd going forward, state law presumptively does not apply to the enclave.” In other words, once the OCS was determined (judicially in the Tidelands Cases, and legislatively in the OCSLA) to be exclusively federally governed, subsequently developed state laws could not be “applicable.”

Finally, the Court noted that the new rule is consistent with its historic OCSLA decisions, most of which have come through the Fifth Circuit: (1) Rodrigue v. Aetna Casualty & Surety Co., 395 U.S. 352 (1969), which held that state wrongful death statutes applied on the OCS given the absence of any applicable federal wrongful death laws; (2) Chevron Oil Co. v. Huson, 404 U.S. 97 (1971), which held that a state statute of limitations/prescriptive statute applied on the OCS given the lack of any uniform federal law of torts; and (3) Gulf Offshore Co. v. Mobil Oil Corp., 453 U.S. 473 (1981), which held that state courts have concurrent jurisdiction over OCS tort claims (which, again, are governed by state substantive tort law in the absence of any unified federal tort law). These cases affirmed application of gap-filling state-law-as-federal-surrogate only when there was a true gap where the federal (non-maritime) law did not provide any rule at all.

Potential Effect on Fifth Circuit Anti-Indemnity Jurisprudence

While the Newton Court was not faced directly with this issue, the Court’s expansive new rule limiting applicability of state law on the OCS may have substantial effect on the Fifth Circuit’s jurisprudence applying the Texas and Louisiana oilfield anti-indemnity statutes on the OCS (TOAIA (Tex. Civ. Prac. & Rem. Code §§127.001-127.00) and LOAIA (La. Rev. Stat. §9:2780), respectively).

While the Supreme Court has never directly taken up the issue of TOAIA/LOAIA’s application on the OCS, there is a large and well-developed body of Fifth Circuit jurisprudence holding that these statutes govern on the OCS pursuant to §1332(a)(2)(A), the very same provision construed by the Supreme Court in establishing the new rule of Newton.

However, this Fifth Circuit jurisprudence focuses primarily on the “not inconsistent” provision of §1332(a)(2)(A), without taking into account the full “applicable and not inconsistent” wording of the statute:

Under Union Texas Petroleum Corp. v. PLT Engineering, Inc. [ (“PLT ”) ], three requirements must be met for state law to apply as surrogate federal law under the OCSLA. First, [t]he controversy must arise on a situs covered by OCSLA (i.e., the subsoil, seabed, or artificial structures permanently or temporarily attached thereto). Second, [f]ederal maritime law must not apply of its own force. Third, [t]he state law must not be inconsistent with Federal law.

Tetra Techs., Inc. v. Cont’l Ins. Co., 814 F.3d 733, 738 (5th Cir. 2016) (regarding LOAIA); see also Grand Isle Shipyard, Inc. v. Seacor Marine, LLC, 589 F.3d 778, 789 (5th Cir. 2009) (“nothing in the LO[A]IA is inconsistent with federal law.”).

Under this arguably incomplete (after Newton) analytical basis, the Fifth Circuit has historically held, ostensibly relying on the Supreme Court’s Rodrigue decision, that the LOAIA/TOAIA are not inconsistent with any federal laws and thus should apply as surrogate law on the OCS:

[Plaintiffs contend that LOAIA/TOAIA] conflicts with and is preempted by the federal common law expressed in United States v. Seckinger, 397 U.S. 203, 90 S.Ct. 880, 25 L.Ed.2d 224 (1970). We recently rejected this argument in Doucet v. Gulf Oil Corporation, 783 F.2d 518 (5th Cir.1986), and we do so again. As the Supreme Court made abundantly clear in Rodrigue v. Aetna Casualty & Surety Co., 395 U.S. 352, 89 S.Ct. 1835, 23 L.Ed.2d 360 (1969), Congress intended that the law of the adjacent state would become surrogate federal law on fixed platforms on the Shelf, to the exclusion of rules of admiralty and common law. Id. at 361–63, 89 S.Ct. at 1840–41. Even if Seckinger accurately reflected the federal common law applicable in an instance as is here presented, a proposition we do not accept, Seckinger ‘s holding and rationale would not displace the law of Louisiana, as “the law of the United States” on the Shelf adjoining Louisiana.

Matte v. Zapata Offshore Co., 784 F.2d 628, 630 (5th Cir. 1986). That is, the Fifth Circuit has rejected the suggestion that any federal body of contractual indemnity law should displace LOAIA/TOAIA.

The problem with the bolded language above is that Rodrigue did not reject application of federal common law on the OCS, just admiralty/maritime law (based on legislative history of the OCSLA). And critically, the Supreme Court in the Seckinger decision referenced above engaged in “fashioning a federal rule” given “that federal law control[led] the interpretation of the contract” at issue before the Court (namely, a plumbing contract for work at a US marine base). Seckinger, 397 U.S. at 210.

Thus, given the Newton Court’s broad limitation of when and how state law can supplant federal law, there is an argument that the Fifth Circuit’s traditional rule enforcing the LOAIA/TOAIA on the OCS may no longer be valid. Specifically, Seckinger supports the proposition that federal common law/jurisprudence recognizes and enforces contractual indemnity agreements within their terms. Moreover, the Longshore Harbor Workers Compensation Act (“LHWCA,” 33 U.S.C. 905(c)) statutorily validates indemnity agreements between OCS platform owners/operators and vessel operators; and thus, arguably, by implication, supports the general proposition that federal law recognizes and enforces indemnity on the OCS. Indeed, the one substantive footnote in the Newton decision specifically contemplates that “state law might be inconsistent [- even absent an on-point federal law -] with a federal law addressing a different issue.”

Justice Thomas’s opinion, joined by all nine Justices, sets forth a straightforward, theoretically simple rule limiting application of state law as surrogate federal law on the OCS: “if a federal law addresses the issue at hand, then state law is not adopted as federal law on the OCS.” The question of how this new rule may interact with the past three-plus decades of Fifth Circuit OCSLA jurisprudence regarding the LOAIA/TOAIA will likely be a much thornier question that could potentially disrupt and totally re-calibrate the rules of how contractual risk allocation works on the OCS in the Gulf of Mexico.