“Mighty Difference Between a Living Thump and a Dead Thump” – BSEE’s “Universal Thump” Invalidated; District Court Holds that BSEE Has No Jurisdiction Over Offshore Contractors

by Baker Donelson
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In a dramatic reversal of a prior and equally dramatic, watershed administrative decision of the Interior Bureau of Land Appeals (IBLA) upholding the Bureau of Safety and Environmental Enforcement’s (BSEE) regulatory jurisdiction over offshore contractors on the Outer Continental Shelf, the United States District Court for the Western District of Louisiana has overturned the IBLA’s ruling and stripped BSEE of that jurisdiction.  Island Operating Co. v. Jewell et al., Case No. 16-145 (W.D. La. Dec. 23, 2016).  Thus, under the Island Operating decision, BSEE may no longer wield what this blog has previously described as “the universal thump [it has previously] passed around” on offshore contractors; it has been rendered, at least for now, a “dead thump.”

As previously reported, the IBLA’s decision in Island Operating Co., 186 I.B.L.A. 199 (Oct. 5, 2015) affirmed BSEE’s enforcement jurisdiction over non-leaseholder/non-operator offshore contractors, relying on both the language of the OCS Lands Act (OCSLA) itself (i.e. 43 U.S.C. §1348) and BSEE’s regulations under the OCSLA (i.e. inter alia 30 C.F.R. §250.146).  This decision was the final administrative step in Island Operating’s challenge (as an effective proxy for all offshore contractors) to BSEE’s unprecedented, unilateral, very recent, and highly controversial efforts to enforce civil penalties against non-leaseholders/non-operators.  This blog noted that Island Operating’s last hope would be in challenging BSEE’s jurisdiction in the judicial branch (as opposed to the executive branch viz. the federal agency process).

In the wake of the IBLA decision, Island Operating did in fact bring its case to the federal courts, and sued acting Secretary of the Department of the Interior Sally Jewell, BSEE, and BSEE director Brian Salerno, seeking essentially (via numerous specific statutory/constitutional/ procedural mechanisms) a reversal of the IBLA decision and a ruling that BSEE has no jurisdiction over offshore contractors – both under the OCSLA and/or its own regulations issued under OCSLA.

Judge Rebecca Doherty, on stipulation of the parties, considered the issue via a trial on the briefs and the IBLA administrative record.  And despite the myriad of complex arguments, counter-arguments, and sub-arguments offered by both Island Operating and the government, Judge Doherty ultimately cut to the quick by relying solely on the congressionally enacted language of OCSLA itself to hold that BSEE had overstepped its authority in issuing Incidents of Non-Compliance (INCs) to Island Operating in its capacity as a non-leaseholder/non-operator offshore contractor, with respect to environmental and safety issues.

Judge Doherty noted that 43 U.S.C. §1348(b) – the section BSEE and the IBLA primarily relied on to support BSEE’s jurisdiction over offshore contractors – is the only statutory provision under OCSLA that deals specifically with health and environmental safety.  Moreover, this section only specifies that the “holder of a lease or permit under [OCSLA]” has any duties to comply with health and environmental safety requirements issued under the auspices of OCSLA (i.e. whether in the statute itself or in regulations promulgated pursuant to the statute):

[B]y way of a contextual reading of the statute, a party who is neither a lease-holder nor a permit-holder, such as Island, is not identified in Section 1348 as having a duty related to environmental and safety standards, and, thus, cannot be found to have violated a duty with which it is not charged, and, therefore, cannot be subject to a penalty or fine.  Consequently, the statute’s plain language, when read in context, is clear, and does not embrace contractors, such as Island, within the duty created by [§]1348(b).

The government had reprised its argument (which it made before the IBLA and which it has essentially relied on throughout the course of its unprecedented, post-Macondo assertion of a jurisdiction over offshore contractors) that 43 U.S.C. §1350 (separate and apart from §1348(b)) authorizes civil penalties against “any person” violating OCSLA provisions/regulations, and thus grants BSEE jurisdiction over contractors as well as leaseholders/operators.  Judge Doherty, however, rejected this argument again on the basis of a straightforward reading of the OCSLA in context:

[§1348] (entitled: “Enforcement of safety and environmental regulations”), is the specific portion of the [OCSLA] dedicated to environmental and safety obligations, and establishes a duty, as well as against whom that duty is imposed, as to safety and environmental matters.  [§]1348 notes that lease-holders and permit holders [emphasis original] have a duty under OCSLA – namely, to “maintain all places of employment . . . in compliance with occupational health and safety standards.”

***

[§1350] (entitled: “Remedies and penalties”) does not itself impose any obligations, rather, it describes what actions [BSEE] can take against those who fail to meet the obligations under the duty imposed by [§1348(b)[ [emphasis original].

While [§1350] does indeed read that “any person” who violates the provisions of OCSLA may be liable for a penalty, only those “persons” against whom a duty has been imposed can violate that duty; [§1348(b)] establishes the duty imposed, and to whom it applies – “any holder of a lease or permit.” [emphasis added].

Thus, Judge Doherty held that the general, expansive “any person” language of §1350 is necessarily circumscribed by the specific, limiting “lease or permit holder” language of §1348(b).  Stated differently, the plain language of §1350 authorizes enforcement against “any person,” but only “any person” who “fails to comply with any provision of this subchapter” (i.e. subchapter III, Title 43, Chapter 29 of the U.S. Code).  In turn, the only “person” who can possibly (under the plain language) “fail to comply” with the duty enacted at §1348(b) are the specifically named “persons” in that section – i.e. lease or permit holders and not contractors.

Judge Doherty also supported her conclusion with the legislative history of §1348, which (as previously noted in this blog), BSEE has ignored or downplayed throughout its efforts at expanding jurisdiction to offshore contractors.  Specifically, earlier drafts of §1348 included a provision that would have made lease and permit holders “jointly” liable “with any employer or subcontractor” for safety and environmental health violations under OCSLA and its regulations.  This provision, however, was removed from the final enacted version of OCSLA, indicating the legislature’s intent that contractors should not be included within the jurisdictional ambit of these provisions.

Judge Doherty also rejected the government’s newly raised (and changing-horse-midstream) argument, not previously made before the IBLA, that it was not in fact relying on §1350’s “any person” language for its expansive jurisdictional reach, but rather on §1334(a).  However, this section concerns and is in fact titled – “Administration of lease,” and thus applies to the administrative process of leasing property on the OCS, not regulating and enforcing operational safety standards.  In short, Judge Doherty rejected the argument under §1334(a) on the basis that “[o]ne administering statute [i.e. regarding lease administration] cannot go outside the reach of that statute itself [i.e. to safety/environmental operational concerns.”

And finally, dovetailing off her conclusion that the OCSLA itself does not authorize BSEE’s self-ordained jurisdiction over offshore contractors, Judge Doherty rejected the government’s bootstrapped argument for jurisdiction based on BSEE’s own regulations issued under the auspices of OCSLA (i.e. 30 C.F.R. §250.146(c)):

BSEE’s regulations – which cannot exceed the authority granted by the enabling statute [OCSLA] – arguably, are worded more broadly than [§1348]; however, regulations cannot expand the scope of the statute itself. . . BSEE’s regulations can only implement the provisions of the statute OCSLA, and cannot expand the enabling statute’s, here, OCSLA, reach.

Given that the OCSLA simply precludes any jurisdiction by BSEE over offshore contractors, the remaining issues raised in Island Operating’s lawsuit (i.e. administrative challenges to BSEE’s rulemaking under OCSLA, BSEE’s interpretation of its own regulations, and constitutional challenges to BSEE’s actions) were all moot.

Judge Doherty noted in conclusion that while there may be policy reasons why BSEE should have jurisdiction over contractors, those policy considerations are the responsibility of the legislature, and cannot alter the language of the OCSLA as it currently exists.

Island Operating’s victory in federal court, after what had been a previous string of administrative defeats before BSEE and the IBLA, is tremendously important for the offshore industry, which has been on tenterhooks for the past half-decade over whether, when and to what extent it could be subject to BSEE’s civil regulatory enforcement powers.

Notably, Judge Doherty’s decision in the civil enforcement context comes on the heels of a similar decision from the Eastern District of Louisiana, which held (on essentially identical grounds) that the federal government lacks jurisdiction to hold offshore contractors criminally liable under OCSLA for safety and environmental violations.  See United States v. Black Elk Energy Offshore Operations, LLC, Case No. 15-cr-197, Rec. Doc. 215 (Apr. 14, 2016) (“This Court agrees . . . that this Indictment is an attempt to impermissibly extend the application of the OCSLA regulations to contractors.”).  The criminal matter is currently on appeal to the Fifth Circuit.

Judge Doherty’s decision, at least for now (and pending a likely inevitable appeal by the government), has given some certainty and solace to offshore contractors that BSEE’s self-proclaimed “universal thump” may stop making the rounds.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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