Texaco Wins One Battle in Platform Accident Case
District Court Must Reconsider Company’s Claims

Texaco Exploration and Prod., Inc. v. AmClyde Engineered Products, Inc., 448 F.3d 760 (5th Cir. 2006)

Josh Clemons

An expensive accident that occurred during the construction of an offshore oil and gas production facility in the Gulf of Mexico led to a lawsuit that ensnared oil companies, equipment manufacturers, insurers and others. In May the U.S. Court of Appeals for the Fifth Circuit untangled the many legal issues.

Background
Texaco Exploration and Production, along with co-plaintiff Marathon Oil, hold a federal oil and gas lease on the Viosca Knoll on the Outer Continental Shelf in the northern Gulf of Mexico. On this site Texaco has undertaken its $400 million Petronius project, with the goal of producing up to 100 million barrels of oil equivalent. The project’s main structure is the compliant tower, an 1870-foot behemoth that is permanently attached to the ocean floor but flexes to withstand the forces of the ocean.

Design, construction, and installation of the compliant tower was contracted to J. Ray McDermott, Inc. (McDermott). During construction McDermott would utilize a barge, the DB-50, owned by J. Ray McDermott International Vessels, Ltd. (JRMIV). Mounted on this barge was a massive crane built by the predecessor to AmClyde Engineered Products, Inc.

On December 3, 1998, during construction of the compliant tower, disaster struck. The main load line of the crane failed, causing an enormous piece of the structure – the South Deck Module – that was being lifted into place to plunge into the Gulf. The loss of the South Deck Module delayed the project for fifteen months. In addition to suffering the costs of losing the Module, the oil company also suffered a loss due to the delay in commencing oil and gas production.

Texaco had insured the Petronius project with Builder’s Risk Underwriters (Underwriters), who paid out $72 million for the loss of the Module and other covered losses. However, this amount did not include the costs to Texaco from the delay in production.

The Lawsuit
With this quantity of money at stake a lawsuit is virtually inevitable. Texaco sued AmClyde under theories of negligence and product liability. Texaco premised jurisdiction on either a federal question under the Outer Continental Shelf Lands Act (OCSLA), or alternatively, admiralty. Texaco would likely have sued McDermott, but their contract contained a binding arbitration clause.1

Texaco sought a jury trial, but the district court refused on the grounds that admiralty law extinguishes the right to a jury trial. Jurisdiction depended on admiralty because the court determined that the OCSLA did not apply in this case. AmClyde moved for judgment as a matter of law and the court granted it. Texaco appealed the district court’s ruling to the Fifth Circuit.

The Appeal
Texaco appealed the district court’s decision to base jurisdiction on admiralty rather than OCSLA, and thus to strike the company’s request for a jury trial. Texaco’s stance on appeal was that there was overlapping jurisdiction under both OCSLA and admiralty.

The court first addressed Texaco’s assertion that OCSLA jurisdiction was proper. OCSLA provides that federal courts “shall have jurisdiction of cases and controversies arising out of, or in connection with (A) any operation conducted on the outer Continental Shelf which involves exploration, development, or production of the minerals, [or] of the subsoil and seabed of the outer Continental Shelf.”2 The Act explicitly defines “development” as including platform construction. The court noted that it has always construed OCSLA’s grant of jurisdiction broadly.

AmClyde argued that admiralty jurisdiction was proper because the damages occurred during the “traditional maritime conduct of transporting goods across navigable waters.”3 The district court had agreed with this argument and determined that admiralty jurisdiction foreclosed OCSLA jurisdiction. The appeals court was faced with a choice: did the accident occur during the development of Outer Continental Shelf minerals, as Texaco asserted, or during the transportation of goods, as AmClyde believed?

The court endorsed Texaco’s position, stating “at the time of the loss of the South Deck Module, the parties were undeniably involved in the development of the Outer Continental Shelf” and that the harm Texaco suffered would not have occurred but for that fact.4 The court rejected AmClyde’s argument because “the undisputed facts demonstrate[d] that traditional maritime transportation was complete at the time of the loss.”5 The court reached this conclusion because the DB-50 had arrived at its final position for the installation of the module, which was being lifted into place by the crane (as opposed to being transported) when it was lost.

Having found that jurisdiction under OCSLA was proper, the appeals court proceeded to analyze whether the district court erred in finding that admiralty jurisdiction existed for Texaco’s claims. Admiralty jurisdiction over an incident depends on two elements: location, and connection with maritime activity. The location requirement was unquestionably satisfied because the incident took place on navigable waters. To satisfy the connectivity requirement, the incident in question must have “the potential to disrupt maritime commerce,” and the “general character of the activity giving rise to the incident [must show] a substantial relationship to traditional maritime activity.”6

To make the connectivity determination the court considered Texaco’s various tort claims. Texaco accused the defendants of: “(1) defective and unreasonably dangerous products design…; (2) negligent failure to furnish sufficient information regarding operating limitations to the barge’s owner; (3) negligent failure to maintain, inspect and/or remedy the crane’s defects; (4) negligent failure to alert Texaco to a known danger with respect to the crane; (5) negligent failure to prevent the construction project from proceeding with knowledge of the crane’s defects; (6) defective and unreasonably dangerous condition of the wire rope…; (7) negligent provision of unmatching port and starboard load lines; and (8) negligent failure to detect deficiencies of the crane and wire rope during a test lift and inspection or a failure to warn if the deficiencies were detected.”7 The court found these causes of action to be inadequate to support admiralty jurisdiction because any tenuous connection they had to traditional maritime activity was overshadowed by their connection to development of the Outer Continental Shelf. Therefore, jurisdiction was properly under OCSLA, not admiralty.

The court then faced the task of determining whether the district court’s denial of a jury trial was reversible error, which required an examination of the applicable substantive law. Both Texaco and AmClyde believed that maritime law would be the applicable substantive law because they had agreed to that condition in their contract. However, the appeals court observed that the OCSLA precludes the application of maritime law, instead utilizing federal law with the law of the adjacent state serving to fill any gaps that might remain. The district court had therefore erred in denying Texaco a jury trial under maritime law. AmClyde argued that this error was a harmless one because the lower court had granted AmClyde’s motion for judgment as a matter of law, which would have prevented the case from going before a jury anyway. Texaco countered that there remained “substantial evidence on disputed facts” such that a reasonable jury could find in its favor, and the court agreed.8 The district court’s erroneous denial of Texaco’s request for a jury trial was not harmless.

Conclusion
The Fifth Circuit refused to affirm the district court’s ruling in AmClyde’s favor and remanded the case. On remand, the district court must determine which state’s substantive law applies to Texaco’s claims, and must also reconsider the request for a jury trial.

Endnotes
1. The insurance company involved in these events filed a separate suit that was consolidated with this case. The legal aspects of the insurance company’s case are not discussed in this article.
2. 43 U.S.C. § 1349(b)(1)(A).
3. Texaco Exploration and Prod., Inc. v. AmClyde Engineered Products, Inc., 448 F.3d 760, 769 (5th Cir. 2006)..
4. Id.
5. Id.
6. Id. at 770.
7. Id.
8. Id. at 776).

University of Mississippi