The Fifth Circuit limits BSEE's regulatory authority over offshore contractors

In the wake of the 2010 Macondo blowout, which involved multiple contractors, the federal government revised its approach to offshore safety and environmental regulation. For the first time, the Bureau of Safety and Environmental Enforcement (BSEE) began to enforce the Outer Continental Shelf Lands Act (OCSLA) against contractors who work for owners and lessees of offshore oil platforms. This change to over a half-century of enforcement policy was a dramatic shift as BSEE and its predecessor agencies, including the Minerals Management Service, had previously stated that it did not regulate offshore contractors.

REGULATORY PERSPECTIVES

Lily N. Chinn

Robert T. Smith

Katten Muchin Rosenman LLP

In the wake of the 2010 Macondo blowout, which involved multiple contractors, the federal government revised its approach to offshore safety and environmental regulation. For the first time, the Bureau of Safety and Environmental Enforcement (BSEE) began to enforce the Outer Continental Shelf Lands Act (OCSLA) against contractors who work for owners and lessees of offshore oil platforms. This change to over a half-century of enforcement policy was a dramatic shift as BSEE and its predecessor agencies, including the Minerals Management Service, had previously stated that it did not regulate offshore contractors.

Numerous contractors that were subject to BSEE’s post-Macondo enforcement challenged the agency’s authority to enforce environmental and safety provisions of OCSLA against them. One of these challenges involved criminal enforcement related to a 2012 multi-fatality fire and explosion on an offshore platform operated by Black Elk Energy. In November 2015, the United States indicted two contractor companies and three of their employees, along with Black Elk Energy, for their alleged roles in causing the explosion. According to the government, the contractors willfully and knowingly failed to abide by welding regulations that had been promulgated under OCSLA. It charged the contractors with multiple felonies under OCSLA, each of which is punishable by up to 10 years in prison and a fine not to exceed $100,000.

The contractors moved to dismiss the indictment, arguing that they cannot be held criminally liable under OCSLA. More specifically, the contractors argued that, when Congress amended OCSLA, it only authorized the federal government to bring enforcement actions against the holder of a lease or permit on the Outer Continental Shelf. Thus, as a statutory matter, contractors cannot be held liable for violations of OSCLA. In the alternative, the contractors argued that, even if Congress authorized the federal government to regulate the conduct of contractors, the government had failed to promulgate regulations under which contractors could be held criminally liable. In other words, as a regulatory matter, contractors cannot be held criminally liable.

The US District Court for the Eastern District of Louisiana agreed with the contractors and dismissed the OCSLA counts of the indictment against both the contracting companies and their employees in April 2016. Faced with an adverse ruling on contractor liability, the United States appealed to the US Court of Appeals for the Fifth Circuit.

On September 27, 2017, the Fifth Circuit issued an opinion inUnited States v. Moss, No. 16-30561, affirming the district court’s dismissal of OCSLA counts against various offshore contracting companies and individual employees as beyond the scope of BSEE’s regulations. This decision is now the law of the land for oil and gas production platforms in the majority of the Gulf of Mexico.

As part of its analysis, the Fifth Circuit first examined the legislative and statutory history of OCSLA, which was enacted in 1953. Although the Court noted that the language of the statute appeared to limit the Department of Interior’s authority to promulgate and enforce safety and environmental regulations against offshore contractors—stating that there was “much to be said for the [contractors’] argument” on this topic—the Court ultimately declined to reach this issue.

Instead, the Fifth Circuit focused on whether the regulations in force during the Black Elk incident applied to offshore contractors and thus could give rise to criminal liability for those contractors. The Court engaged in a holistic and detailed analysis of the various BSEE regulations at issue, ultimately agreeing with the district court that BSEE’s regulatory definition of “You” purposely excluded contractors.

While the case before the Fifth Circuit focused specifically on criminal liability, the Court went out of its way to address the applicability of civil liability for contractors under BSEE’s regulations. As the Court explained:

“The government’s past inaction speaks volumes about the scope of its regulatory authority…BSEE and its predecessors enforced the regulations here at issue for over sixty years only against lessees, permittees and designated operators of offshore production rights. The agency placed responsibility, both civil and potentially criminal, on the named parties for ensuring compliance with the regulations by all of the many contractors, subcontractors and individual employees whose efforts are necessary to develop the Outer Continental Shelf. The agency explicitly disclaimed imposing direct regulatory control on the subordinate parties. The agency’s 2011 about-face “flatly contradicts” the agency’s earlier, contemporaneous interpretation of the regulations.

These statements were not made in a vacuum. A second challenge to BSEE enforcement authority to civilly enforce OCSLA through issuance of Incidents of Noncompliance (INC),Island Operating Co. v. Jewell, No. 17-130440, is currently pending before the Fifth Circuit. In the Island case, an offshore contractor, Island Operating Co., successfully challenged BSEE’s right to issue it an INC related to a 2012 fire on a platform operated by Apache Corp. in the US District Court for the Western District of Louisiana. The district court held that, under OCSLA, the duty to comply with safety and environmental regulations “does not extend beyond permit-holders and lease-holders.” In a direct nod to the Island case, the Fifth Circuit stated that BSEE’s “new position is hardly entitled to deference in the civil context” and directly cited to the district court’s decision in the Island case.

Despite these strong statements, however, the Fifth Circuit left open the possibility that BSEE may in the future issue regulations under OCSLA applicable to contractors. More specifically, because the Court did not reach the question of whether OCSLA authorizes the Department of Interior to issue environmental and safety regulations that apply to contractors, it is at least possible that BSEE could attempt to issue such regulations. If it were to do so, however, it would surely face claims that OCSLA does not authorize BSEE to regulate contractors—the issue that the Fifth Circuit declined to resolve in the Black Elk case. Given the current administration’s view of limited government, however, it seems unlikely that such regulations would be imminent.

The authors

Lily N. Chinn and Robert T. Smith are partners in Katten’s Environmental and Workplace Safety practice, and represented one of the contractor companies in the Black Elk Energy matter.

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