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December 9, 2019

Fifth Circuit Extends Doiron Test For Assigning Maritime-Contract Status To Contracts That Are Not Oilfield Services Contracts

The U.S. Court of Appeals for the Fifth Circuit recently held that its two-question Doiron test for determining whether oilfield services contracts are maritime contracts also applies when evaluating the maritime-contract status of contracts for any other type of services.  Barrios v. Centaur, L.L.C., 942 F.3d 670 (5th Cir. 2019).  This decision is important for any company working in the Gulf of Mexico because it simplifies the maritime-contract classification process for their undertakings.  Because Doiron is no longer read to be limited to oilfield service contracts, entities such as offshore construction and decommissioning companies, whose service contracts  could not always be neatly characterized as “facilitat[ing] the drilling and production of oil and gas,” should have an easier time qualifying their contracts as maritime contracts.  It should also enable contracting parties to better assess their maritime or non-maritime status when entering into a service contract because the tests are relatively clear and are not reliant on after-the-fact tort considerations.  This clarity is especially important for any type of company working in the Gulf of Mexico, where the maritime or non-maritime status of a contract could determine the governing law.  Notably, a non-maritime contract governing services in the Gulf could be subject to Louisiana and Texas’s construction and oilfield anti-indemnity statutes, which could make the contract’s key risk allocation provisions unenforceable.

  1. The In re Larry Doiron, Inc. decision established a reasonable test for determining whether oilfield service contracts constitute maritime contracts, but it did not expressly address other types of contracts.

In 2018, the Fifth Circuit issued its decision in Doiron which greatly simplified the standards for assessing when an oilfield service contract is a maritime contract.  In doing so, it rejected the nearly 30-year old test of Davis & Sons, Inc. v. Gulf Oil, which instructed courts to consider six tort-law factors in determining whether an oilfield service contract constituted a maritime contract.  The Davis & Sons factors required courts to consider the unique facts of the incident giving rise to the claim under the relevant contract, not what the parties envisioned at the time of signing the contract.  Courts applying Davis & Sons also had to evaluate the contract in light of prior court decisions which had classified certain types of service contracts as non-maritime contracts. 

The Doiron Court rejected this cumbersome and somewhat unpredictable approach and replaced it with a two-question inquiry focused on the parties’ expectations when signing the contract for oilfield services:

First, is the contract one to provide services to facilitate the drilling or production of oil and gas on navigable waters? ... Second, if the answer to the above question is “yes,” does the contract provide or do the parties expect that a vessel will play a substantial role in the completion of the contract?

In re Larry Doiron, Inc., 879 F.3d 568, 576 (5th Cir. 2018) (en banc). 

The Doiron test, by its own terms, specifically addresses oil and gas contracts, but its original reach over other types of service contracts had been uncertain.  Before Barrios, the Fifth Circuit had only one occasion to consider whether this test was limited to oil and gas activities, and that case did not end the uncertainty.  In Crescent Energy Services, LLC v. Carrizo Oil & Gas, Inc., the Court considered whether the plugging and abandonment of a well from a fixed platform “facilitate[d] the drilling of production of oil and gas” and met Doiron’s first element for qualification as a maritime contract. The Court rejected arguments that this decommissioning activity was more akin to non-maritime offshore construction activities.  Instead, it adopted a broader view that qualifying activities for Doiron’s first element need only relate to the “life cycle” of oil and gas drilling production.  While ruling the first Doiron element was satisfied because the contract dealt with an activity that related in some way to oil and gas production, it left open the possibility that some other oil and gas activities might occur outside of this qualifying life cycle and be classified as the subject of a non-maritime contract.  In addition, it did not address how Doiron would be applied to determine the maritime-contract status of other types of services unrelated to any oil and gas production.

  1. The Barrios decision makes clear that all contracts for services to facilitate an activity on navigable waters are to be evaluated under the Doiron test when determining maritime status.

In Barrios, the Fifth Circuit for the first time considered whether a contract to provide non-oil and gas services is a maritime contract under the Doiron standard.  The contract at issue involved the construction of a concrete containment rail on an existing dock, which extended into the Mississippi River.  The containment rail would help prevent bulk cargo from spilling into the river during vessel loading and unloading operations. 

The Court expressly rejected arguments that: (1) Doiron’s first prong for determining whether a contract’s principal objective is maritime commerce was merely a “shortcut” only applicable to oil and gas contracts; and (2) for all other types of contracts, a court should ask whether the activity involves maritime commerce and work from a vessel.  The Court concluded such an approach for assessing the maritime status of contracts outside the oilfield services area was not desirable because it would likely recreate the previously rejected Davis & Sons fact-specific and precedent reliant approach.  Rather, the court stated:

Doiron’s two-part test applies as written to all mixed-services contracts. To be maritime, a contract (1) must be for services to facilitate activity [e.g., the construction of a containment railing on a dock or the abandonment of a well] on navigable waters and (2) must provide, or the parties must expect, that a vessel will play a substantial role in the completion of the contract.

Barrios, 942 F.3d at 680.

Applying this reformulated test, the Court “easily” concluded the Barrios contract to install a concrete containment rail along a dock satisfied both required elements set out in Doiron.  It said the contract at issue met the navigable waters prong because: “Collectively, those facts establish that the Dock Contract required services to be performed to facilitate the loading, offloading, and transportation of coal and petroleum coke via vessels on navigable waters. That some services were also performed on the dock, which was affixed to the land, isn’t dispositive.” Id. at 681. The Court then explained the contract satisfied Doiron’s second prong because the contract provides for, or the parties expected, a vessel to play a substantial role in fulfilling the contract.  In Barrios, the project proposal indicated a crane barge would be needed to mix and pour the concrete containment rail and a tug boat would be present to move a barge, as needed.  In addition, the undisputed testimony demonstrated that the contract could not have been completed without the use of a vessel, and the Court was willing to rely on this additional evidence to supplement the contract’s terms concerning the need for and importance of the vessel.

  1. Lessons to be learned from the Barrios

The Barrios decision teaches some key points for lawyers concerned with drafting, or litigating issues arising under, any type of service contracts that might qualify as maritime  contracts.  By eliminating any distinction between contracts for oilfield services and other services when resolving a contract’s maritime status, it establishes the Doiron test as the only test to determine whether a mixed-use contract qualifies as a maritime contract.  With the Doiron test in control, the difficulty of proving the contract for services “facilitated the drilling and production of oil and gas” will no longer be an impediment to having the contract classified as a maritime contract.  Use of the Doiron test will enable parties to better assess the likelihood of having a contract classified as a maritime contract and will provide more certainty and better risk-allocation decisions in the ever-evolving offshore construction industry.  Barrios also provides greater insight into the type of evidence courts will consider in determining whether the parties envisioned a vessel playing a substantial role in the completion of a contract as required under Doiron’s second prong.  The Court’s reliance on documents and evidence outside of the four corners of the contract—the project proposal and deposition testimony—suggests courts should be willing to consider a wide range of evidence in evaluating this factor and should be likely to reach a decision that is based on the parties’ understandings about the vessel at the time they executed the contract.