Adopting a Two-Pronged Test for Maritime Contracts: Insights from In Re Larry Doiron, Inc.

Adopting a Two-Pronged Test for Maritime Contracts: Insights from In Re Larry Doiron, Inc.

Introduction

In Re: Larry Doiron, Incorporated is a pivotal case adjudicated by the United States Court of Appeals for the Fifth Circuit on January 8, 2018. The case revolves around determining whether a master services contract (MSC) between Apache Corporation and Specialty Rental Tools & Supply, L.L.P. (STS) falls under maritime law or Louisiana state law. This distinction is critical because it influences the enforceability of indemnity provisions within the contract. Larry Doiron, Inc. (LDI), operating the barge Pogo and M/V Billy Joe, sought indemnification under the MSC, leading to a legal dispute that ultimately required the court to reassess the criteria for classifying contracts as maritime.

Summary of the Judgment

The Fifth Circuit initially affirmed the district court's decision that the MSC was a maritime contract, thereby enforcing the indemnity provision under general maritime law. However, upon en banc review, the Court determined that the existing six-factor test from Davis & Sons, Inc. v. Gulf Oil Corp. was overly complex and inconsistent with Supreme Court precedents. Consequently, the Court adopted a streamlined two-pronged test inspired by the Supreme Court’s decision in Norfolk Southern Railway Co. v. Kirby. Applying this new test, the Court concluded that the MSC in question was nonmaritime because the use of a vessel was not a substantial or expected part of the contract. As a result, Louisiana law prevailed, nullifying the indemnity provision and reversing the summary judgment in favor of LDI.

Analysis

Precedents Cited

The Fifth Circuit’s decision extensively analyzed prior case law to navigate the murky waters distinguishing maritime contracts from nonmaritime ones. Initially anchored in the six-factor test from Davis & Sons, Inc. v. Gulf Oil Corp., the panel recognized criticisms regarding its complexity and inconsistency. Key precedents influencing this judgment include:

  • Hoda v. Rowan Cos., 419 F.3d 379 (5th Cir. 2005) - Highlighted the challenges of applying the Davis & Sons test.
  • Norfolk Southern Railway Co. v. Kirby, 543 U.S. 14 (2004) - Provided a simplified framework for identifying maritime contracts.
  • THURMOND v. DELTA WELL SURVEYORS, 836 F.2d 952 (5th Cir. 1988) - Expressed concerns over inconsistent maritime contract analyses.
  • Grand Isle Shipyard, Inc. v. Seacor Marine, LLC, 589 F.3d 778 (5th Cir. 2009) - Emphasized focusing on the contract’s purpose over the site of injury.

These cases collectively underscored the necessity for a clearer, more consistent approach, culminating in the adoption of the Kirby-inspired two-pronged test.

Legal Reasoning

The Court identified that the existing Davis & Sons six-factor test was not only cumbersome but also led to unpredictable outcomes. By embracing the Supreme Court’s guidance in Kirby, the Court sought to anchor maritime contract determination on the contract's intrinsic nature rather than on ancillary factors.

The two-pronged test established is as follows:

  • First Prong: Does the contract provide services to facilitate the drilling or production of oil and gas on navigable waters?
  • Second Prong: Does the contract involve the substantial use or expectation of a vessel in completing its obligations?

Applying this test, the Court found that while the contract aimed to perform services related to oil production in navigable waters, the involvement of a vessel was incidental and not substantial. The unexpected necessity of a crane barge was not a foreseen element of the contract, thereby classifying it as nonmaritime.

Impact

The adoption of the two-pronged test simplifies the criteria for determining maritime contracts, reducing the ambiguity associated with the previous multi-factor approach. This clarity is expected to:

  • Decrease litigation arising from inconsistent contract classifications.
  • Provide businesses with a clearer framework to assess their contractual obligations and potential liabilities.
  • Align federal courts more closely with Supreme Court precedent, enhancing uniformity across jurisdictions.

Furthermore, this decision underscores the judiciary's inclination towards precedent adherence and simplification of legal tests, fostering predictability in maritime law.

Complex Concepts Simplified

Maritime vs. Nonmaritime Contracts

Determining whether a contract is maritime is pivotal because maritime contracts are governed by a distinct body of law. Maritime contracts typically involve activities related to navigation, shipping, and maritime commerce on navigable waters. Nonmaritime contracts, on the other hand, fall under state law, which may impose different obligations and restrictions, such as the Louisiana Oilfield Indemnity Act (LOIA).

Indemnity Provision

An indemnity provision is a contractual clause where one party agrees to compensate another for certain costs and liabilities. In maritime contracts, such provisions are enforceable under general maritime law. However, state laws like the LOIA can render them void if the contract is deemed nonmaritime.

Two-Pronged Test for Maritime Contracts

The newly adopted two-pronged test serves as a streamlined method to ascertain the maritime nature of a contract:

  1. Assess if the contract involves services facilitating oil and gas production on navigable waters.
  2. Determine if the contract expects substantial involvement of a vessel in fulfilling its obligations.

This test shifts the focus to the primary objectives and expectations within the contract, rather than dissecting the specific activities through multiple lenses.

Conclusion

The Fifth Circuit's en banc decision in In Re Larry Doiron, Inc. signifies a critical evolution in maritime contract law within the Fifth Circuit. By adopting a two-pronged test aligned with Supreme Court precedent, the Court has streamlined the process for distinguishing maritime contracts from their nonmaritime counterparts. This shift not only resolves previous inconsistencies but also provides clearer guidance for future cases involving maritime and state law intersections. The ruling reinforces the importance of aligning lower court analyses with higher court directives, thereby enhancing legal coherence and predictability in the realm of maritime commerce.

Reference: In Re Larry Doiron, Inc., No. 16-30217, 879 F.3d 568 (5th Cir. 2018).

Case Details

Year: 2018
Court: United States Court of Appeals, Fifth Circuit.

Judge(s)

W. Eugene Davis

Attorney(S)

Alan David Ezkovich, Attorney, New Orleans, LA, Clarence William Emory, Georges M. Legrand, Mouledoux, Bland, Legrand & Brackett, L.L.C., New Orleans, LA, Kristin M. Lausten, Ezkovich & Company, LLC, New Orleans, LA, for Plaintiffs–Appellees. Mark Lynn Clark, Robert Jeffrey Bridger, Esq., Thompson, Coe, Cousins & Irons, L.L.P., New Orleans, LA, for Defendants–Appellants. Harold Kemler Watson, Alan R. Davis, Ivan Mauricio Rodriguez, Chaffe McCall, L.L.P., Houston, TX, as Amicus Curiae for Liberty Mutual Insurance Company and Liberty International Underwriters. Richard K. Leefe, Attorney, Leefe, Gibbs, Sullivan, Dupre' & Aldous, L.L.C., Metairie, LA, as Amicus Curiae for Crescent Energy Services, L.L.C.

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