The Fifth Circuit Rejects the DOJ’s Attempt to Charge Black Elk Contractors with OCSLA Felonies

by Liskow & Lewis

In the aftermath of a 2012 platform explosion in the Gulf of Mexico in which three workers were killed, the Department of Justice ultimately indicted the contractors who supervised the work (along with the lease holder, Black Elk Energy Offshore Operations, LLC) with violating the Outer Continental Shelf Land Act (“OCSLA”), a felony carrying a maximum penalty of up to ten years imprisonment.  The contractors were also charged with certain misdemeanor Clean Water Act violations.  The contractors moved to dismiss the OCSLA charges on the basis that their conduct – as contractors – was not covered by OCSLA because they were not the lease holder or operator.  The district court agreed and dismissed those charges, after which the government appealed.  Earlier this week, the Fifth Circuit ruled against the government finding that contractors cannot criminally violate these OCSLA regulations.  United States v. Moss, et al, No. 16-30561 (5th Cir. Sept. 27, 2017).

In 2010, Black Elk Energy Offshore Operations, LLC (“Black Elk”) owned and operated a production facility on the West Delta 32 Lease Block located in the Gulf of Mexico.  As is customary for a typical oil and gas operation, Black Elk hired several contractors to perform various tasks on its platforms.  Grand Isle Shipyards, Inc. (“GIS”), for example, provided platform workers, the supervisor of which was Curtis Dantin.  Wood Group PSN, Inc. (“Wood Group”) also provided platform workers and supplied a “Person-in-Charge” of the platform, Christopher Srubar.  Srubar, along with other Wood Group personnel conducted safety inspections on the platforms and were in charge of issuing “hot work” permits for tasks that could emit sparks, such as welding.

In September 2012, Black Elk hired Compass Engineering and Consulting, LLC (“Compass”) to draft construction plans for maintenance on the platforms.  Compass hired Don Moss as an onsite inspector to ensure the plans were being followed properly.  During the installation of a divert valve on the Lease Automatic Custody Transfer unit, a Black Elk manager ordered that certain missing piping be rebuilt, which necessarily involved welding by GIS personnel.  Wood Group issued the hot work permit for this task on November 16, 2010.  That morning, an explosion occurred—the cause of which is still in dispute—killing three men and injuring several others.

Almost three years later, the United States brought criminal indictments against multiple parties.  Among other charges, the contractor parties (GIS, Wood Group, Srubar, Moss, and Dantin) were charged with eight counts of knowing and willful violations of the OCSLA enabling regulations.  See 43 U.S.C. § 1350(c).  The contractors moved to dismiss all counts.  The district court denied all of the motions to dismiss except the contractors’ motions regarding the OCSLA charges, which it granted for failure to state an offense on the grounds that OCSLA did not create criminal liability for contractors.  The government appealed.

On appeal, the Fifth Circuit faced a question of statutory interpretation: did OCSLA criminal liability apply to contractors or instead only to lease holders?

The government raised several highly nuanced arguments supporting its interpretation of the statute.  The government asserted that because part of the statute states that “any person” who violates a regulation promulgated under OCSLA is subject to criminal penalties, a contractor – indeed anyone – who violates the regulations may be criminally charged. The Fifth Circuit rejected that interpretation finding that such a reading flies in the face of an explicit limitation found earlier in the statute that limits criminal liability to the lessees and permittees.  Ultimately, however, the Court found it did not need to reach the question of whether that statutory provision triggers criminal liability for contractors because the underlying regulations did not.  Those regulations, which were issued pursuant to OCSLA and formed the basis of the alleged improper conduct, did not apply to contractors.

Turning to the regulations promulgated under OCSLA, the government seized upon a section stating that a lessee and “the person actually performing the activity to which the requirement applies are jointly and severally responsible for complying with the regulation.”  30 C.F.R. § 250.146(C).  This, the government argued, created joint and several criminal liability for contractors.  The Fifth Circuit rejected that interpretation pointing to an earlier section of the regulation that again limits the regulations to a lessee or permit holder.  The Court also voiced skepticism that criminal liability could be based upon a theory of joint and several liability, which is traditionally a civil tort theory.

Fundamentally, the Court ruled that under OCSLA, while the lease holder is criminally liable for the conduct of its contractors (because the lease holder is tasked with ensuring the contractors comply with OCSLA regulations), the statute does not operate in reverse allowing the contractors to be criminally liable by way of the lessee’s liability.  This was purposeful, the Court found, and ensured that “lessees cannot escape responsibility for regulatory compliance by hiring out work to contractors.”  Id. at 13.  Moreover, the Court emphasized that the “virtually non-existent past enforcement of OCSLA regulations against contractors confirms that the regulations were never intended to apply to” contractors.  Id. at 15.

While the Court acknowledged that the Bureau of Safety and Environmental Enforcement (“BSEE”) changed its policy following the Deepwater Horizon spill in 2010 to include contractors within its regulatory sphere, it found that those changes contradicted the agency’s sixty year history of enforcement.  And even if those policy changes were valid in the civil enforcement context (of which the Court was skeptical), the Court ruled that changing criminal law – which carries with it the potential of imprisonment – by such policy adjustments runs afoul of basic due process and fairness.

Also importantly, the Court noted that were the government’s position to prevail, the DOJ itself, without the input of other branches of government, would have significantly changed the commercial landscape in the oil and gas industry for contractors, “who heretofore have had no need to price their services according to regulatory risk; no ability to engage insurance protection for regulatory violations; no need to personally review and apply the exact regulations (because they followed the directives of the designated operator or lessee); and no incentive to impose themselves in the offshore workplace as self-protection against others’ potential regulatory violations.”  Id. at 20.

While this week’s decision may ease offshore contractors’ fears of criminal prosecution under OCSLA, the Fifth Circuit has yet to address BSEE’s civil enforcement of contractor conduct under the agency’s increasingly aggressive civil penalty programId. at 2-3.  In fact, the question of BSEE’s authority to issue civil penalties to offshore contractors is currently before the Fifth Circuit in Island Operating Co., Inc. v. Jewell, a related case which is presently stayed pending resolution of United States v. Moss.  While it is uncertain how the Fifth Circuit will rule in Island Operating, this week’s decision suggests that the court may find that BSEE lacks authority to issue civil penalties to offshore contractors, at least under the agency’s current regulations.

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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