Fifth Circuit sounds death knell for BSEE jurisdiction over offshore contractors

Nov. 17, 2017
In the wake of the Black Elk decision, the United States Fifth Circuit Court of Appeals has fully and finally defeated BSEE’s jurisdiction over offshore contractors. 

Christopher Hannan

Baker Donelson

Since October 2011, when the Bureau of Safety and Environmental Enforcement (BSEE) issued its first-ever Incidents of Non-Compliance (INCs) against offshore contractors in the Macondo 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 observer has followed the pitched battles along the way, from the first volley of BSEE’s initial issuance of the INCs, 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 Sept. 27, 2017 inUSA 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 inBlack 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.” 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.

The court’s ruling held that “the 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.’ 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 2010 blowout in the Gulf of Mexico. 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.” 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.

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 against BSEE’s claim of jurisdiction over contractors.

Notably, theBlack Elk decision ostensibly concerned only BSEE’s criminal jurisdiction over contractors. A parallel case, Island Operating Co. v. Jewell et al., 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.

However, the Fifth Circuit’sBlack Elk decision appears to be a coup de grace for both the criminal and civil enforcement questions. 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.

In other words, while the issue before the Fifth Circuit inBlack 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 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 finally defeated BSEE’s self-proclaimed jurisdiction over offshore contractors, pending a possible (but unlikely) review by the US Supreme Court.