Lexon v. Chevron: Fifth Circuit Limits Surety Subrogation & Contribution on the Outer Continental Shelf

1. Introduction

In Lexon Insurance Co. v. Chevron U.S.A. Inc., No. 24-20347 (5th Cir. Aug. 19, 2025), the United States Court of Appeals for the Fifth Circuit addressed whether a surety that pays bond penalties to the federal government for offshore decommissioning obligations can recover that payment from prior leaseholders. The dispute arose after Linder Oil—the operator of an Outer Continental Shelf (“OCS”) lease—defaulted on its statutory duty to plug and abandon wells, remove platforms, and dismantle a pipeline in West Cameron Block 168, offshore Louisiana. Lexon Insurance, Linder Oil’s surety, paid the United States more than $11 million pursuant to eight performance bonds and then sued former record-title owners Chevron, Sojitz, and BP America for reimbursement under theories of:

• Federal and state subrogation,
• Contribution as co-sureties, and
• Unjust enrichment.

The Southern District of Texas dismissed all claims on cross-motions for summary judgment. On appeal, the Fifth Circuit affirmed, establishing a noteworthy precedent on the limited availability of surety subrogation and contribution in the OCS context, the narrow reach of 31 U.S.C. § 9309 (“Priority of sureties”), and the supremacy of adjacent-state law via the Outer Continental Shelf Lands Act (“OCSLA”) where federal law is silent.

2. Summary of the Judgment

The Fifth Circuit held:

1. 31 U.S.C. § 9309 confers on a paying surety only (a) the United States’ priority to the principal obligor’s assets and (b) a right to sue “under the bond”. It does not authorize suits against third parties (here, prior leaseholders who never signed the bond).
2. Federal common-law equitable subrogation does not fill statutory gaps on the OCS; OCSLA requires courts to borrow adjacent state law—Louisiana law in this case—unless Congress has enacted conflicting federal law.
3. Under Louisiana Civil Code, Lexon failed to qualify for “legal subrogation” (arts. 1829 & 3048) because it lacked a right of recourse against Defendants “as a result of” paying the bonds.
4. Lexon’s contribution claim under art. 3055 failed because Defendants were not co-sureties, and even if they were, indemnity agreements shifted the entire burden to Linder Oil.
5. Lexon’s unjust-enrichment claim failed because any benefit to Defendants was contractually justified—Linder Oil expressly indemnified them for decommissioning costs.

Accordingly, the district court’s dismissal was affirmed in full.

3. Detailed Analysis

3.1 Precedents Cited & Their Influence

• Parker Drilling Mgmt. Servs., Ltd. v. Newton, 587 U.S. 601 (2019) – Reiterated that all law on the OCS is federal, and state law is incorporated only to fill gaps. Guided the court to look first for on-point federal statutes (e.g., § 9309) and only then to Louisiana law.
• Pearlman v. Reliance Ins. Co., 371 U.S. 132 (1962) – A classic expression of equitable subrogation, but the Fifth Circuit distinguished it, noting that OCSLA displaces judge-made federal common law in favor of state law where Congress intended.
• Chevron Oil Co. v. Huson, 404 U.S. 97 (1971), and Matte v. Zapata Offshore Co., 784 F.2d 628 (5th Cir. 1986) – Both underscore courts’ reluctance to create interstitial federal common law in OCSLA cases.
• In re Tri-Union Dev. Corp., 479 B.R. 425 (Bankr. S.D. Tex. 2012), and In re J. Menist Co., 289 F. 229 (2d Cir. 1923) – Explained that § 9309’s predecessor merely grants a surety the government’s priority in the principal’s insolvency, not a broad subrogation right against strangers to the bond.
• Louisiana cases such as Martin v. Louisiana Farm Bureau, 638 So.2d 1067 (La. 1994), State Farm v. Berthelot, 732 So.2d 1230 (La. 1999), and Scarborough v. Scarborough, 25 So.3d 941 (La. Ct. App. 2009) – Provided the doctrinal backdrop for articles 1829, 3048, and 3055 on subrogation and contribution.

3.2 Court’s Legal Reasoning

1. Textual Reading of § 9309.
   • Title (“Priority of sureties”) and operative language limit a surety’s remedy to the debtor’s estate and to actions “under the bond.”
   • Because Chevron, Sojitz, and BP were never parties to the bonds, Lexon had no statutory cause of action against them under § 9309.
2. OCSLA’s Gap-Filling Mechanism.
   • Where federal statutes are silent (as here regarding surety claims against non-bonded third parties), OCSLA directs courts to apply the adjacent state’s law.
   • Attempting to craft federal common law would contravene the congressional scheme outlined in 43 U.S.C. § 1333.
3. Application of Louisiana Subrogation Rules.
   • Art. 1829(3) requires that a paying obligor have “recourse” against the others “as a result of” the payment.
   • Lexon could not show such recourse because (a) Chevron had transferred shallow-water rights with express indemnity from Linder Oil, and (b) Sojitz had been released from decommissioning liability by contract.
   • Consequently, art. 3048’s surety-subrogation rule never activated.
4. Denial of Contribution.
   • “Co-surety” status presupposes that parties undertook the same primary obligation. Here, Defendants either retained deep rights, held only historic record title, or were passive interest holders. None executed Lexon’s bonds.
   • In any event, indemnity provisions explicitly shifted all decommissioning costs to Linder Oil, rebutting any presumption of shared burden (art. 3055).
5. Unjust Enrichment Foreclosed by Contractual Justification.
   • Under art. 2298, enrichment must be without cause; the presence of a valid contract (Linder Oil’s indemnities and the Purchase & Sale Agreement) provides “cause” in Louisiana terminology, eliminating quasi-contract relief.

3.3 Anticipated Impact

• Surety Industry: Sureties underwriting offshore decommissioning bonds must recognize that reimbursement from predecessors-in-title or related parties is uncertain unless expressly provided by contract.
• OCS Leasing and M&A: Buyers and sellers of OCS interests will likely insist on clearer indemnity and bonding provisions, understanding that federal statutory subrogation is limited.
• Federal-State Balance: The decision reinforces OCSLA’s command that adjacent-state law—not free-floating federal common law—fills legal gaps, thereby preserving state sovereignty in offshore matters.
• Future Litigation: Plaintiffs will need to allege (1) privity under the bond or (2) a specific state-law right of action. Assertions of broad, equitable federal subrogation on the OCS are less likely to succeed.

4. Complex Concepts Simplified

Subrogation

The legal mechanism by which one party (e.g., a surety) that pays a debtor’s obligation “steps into the shoes” of the creditor to pursue recovery from the debtor or other liable parties.

Equitable vs. Legal Subrogation

“Equitable” arises from fairness principles and is judge-made; “legal” (in Louisiana) arises automatically by operation of statutes (arts. 1829 & 3048) when specified prerequisites are met.

Co-Surety / Contribution

When two or more sureties secure the same debt, each is presumptively liable for an equal (“virile”) share. If one pays more than its share, it may seek contribution from the others—unless contractually displaced.

OCSLA Gap-Filling

Under 43 U.S.C. § 1333(a)(2)(A), state law of the adjacent state (here, Louisiana) applies as federal law on the OCS only where there is no existing federal rule on a given issue.

31 U.S.C. § 9309

A federal statute giving a surety that has paid the United States (1) equal priority with the government in the principal’s insolvency and (2) the right to sue under the bond—but only against parties bound by that bond.

5. Conclusion

The Fifth Circuit’s opinion in Lexon v. Chevron firmly limits a surety’s ability to shift offshore decommissioning costs to parties outside the surety-bond triangle. The court:

• Narrowly construed § 9309 to reach only the debtor’s estate and bond parties,
• Rejected the creation of federal common-law subrogation in OCSLA cases,
• Applied Louisiana’s Civil Code to deny legal subrogation, contribution, and unjust-enrichment claims, and
• Affirmed that indemnity agreements can provide a valid legal “cause” barring quasi-contract recovery.

Practitioners should view the decision as a cautionary tale: without explicit contractual rights, sureties may bear the full brunt of OCS decommissioning defaults. Parties structuring OCS transactions should scrutinize indemnity, bonding, and allocation clauses to avoid unintended exposure. Ultimately, Lexon strengthens the predictable application of OCSLA’s choice-of-law regime while clarifying the contours of surety remedies in the complex offshore energy sector.