EP Operating Ltd. Partnership v. Placid Oil Co., 93-3401

• Decision Date: 21 July 1994
• Docket Number: No. 93-3401,93-3401
• Citation: 26 F.3d 563
• Parties: EP OPERATING LIMITED PARTNERSHIP, Plaintiff-Appellant, Cross-Appellee, v. PLACID OIL CO., et al., Defendants-Appellees, v. MANTA RAY GATHERING SYSTEMS, Defendant-Appellee, Appellant-Cross-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 563

26 F.3d 563

EP OPERATING LIMITED PARTNERSHIP, Plaintiff-Appellant, Cross-Appellee, v. PLACID OIL CO., et al., Defendants-Appellees, v. MANTA RAY GATHERING SYSTEMS, Defendant-Appellee,

Appellant-Cross-Appellant.

No. 93-3401.

United States Court of Appeals Fifth Circuit.

July 21, 1994.

Blake G. Arate, Scott A. O'Connor and Paul E. Bullington, Gordon, Arate, McCollam & Duplantis, New Orleans, LA, B.J. Duplantis, Gordon, Arata, McCollam & Duplantis, Lafayette, LA, for appellant.

Edward J. Shawaker, Atty., Appellate Section, Environment and Natural Resources Div., Robert L. Klarquist, Washington, DC, for amicus-USA.

Robert S. Rooth, John N. Kennedy, James C. Young, Douglas L. Grundmeyer, Chaffe, McCall, Phillips, Toler & Sarpy, New Orleans, LA, for Placid Oil Co., et al.

Joseph R. White, Fraser, White and Des Roches, New Orleans, LA, for Manta Ray Gathering Systems.

Howard L. Murphy, Deutsch, Kerrigan & Stiles, New Orleans, LA, for Cooper Industries.

Appeals from the United States District Court for the Eastern District of Louisiana.

Before JOHNSON, BARKSDALE, and DeMOSS, Circuit Judges.

JOHNSON, Circuit Judge:

EP Operating Limited Partnership ("EP"), a co-owner of certain property located on the Outer Continental Shelf ("OCS"), filed suit against its co-owners to partition the property. Jurisdiction in federal court was premised on the Outer Continental Shelf Lands Act ("OCSLA"). ¹ A group of co-owners, led by Placid Oil Co. ("Placid"), joined issue and filed a motion to dismiss for lack of subject matter jurisdiction pursuant to Fed.R.Civ.P. 12(b)(1). The district court granted this motion and EP appeals. ² We REVERSE and REMAND.

I. FACTS AND PROCEDURAL HISTORY

In May 1986, EP, Placid, certain predecessors in interest to Manta Ray, and various other entities jointly agreed to acquire two federally-created offshore pipeline rights-of-way. ³ Pursuant to their agreement, the co-owners constructed on these rights-of-way an oil pipeline, a natural gas pipeline, an offshore platform and related processing facilities (collectively, the "offshore facilities"). ⁴

Between November 1988 and April 1990, these offshore facilities were used to process and transport minerals. However, in April of 1990, it was determined that the wells which were being serviced by the offshore facilities were no longer producing in paying quantities and thus further operation of the mineral leases was no longer economically feasible under the existing market conditions. Hence, the wells were shut down and the offshore facilities have lain dormant since that time. ⁵

The current dispute arose out of EP's attempt to recover some value from these unused and depreciating assets on the OCS. According to EP, these attempts have been hampered by the fact that there are nine co-owners and that the property is encumbered by numerous liens. This unwieldy situation, EP alleges, has made it difficult to conduct negotiations to connect the offshore facilities to producing leases or other pipelines or to sell or salvage the equipment. Thus, unable to reach a voluntary agreement as to the disposition of these offshore facilities, EP brought suit against its co-owners ⁶ and against several record lienholders ⁷ seeking a partition by licitation. This is the first step, EP maintains, in facilitating the reuse of these offshore facilities.

One of the co-owners named as a defendant, Manta Ray, answered EP's suit and filed counter-claims and cross-claims seeking substantially the same relief as that sought by EP. The other co-owners, however, contest the instant partition action. Leading the charge for the defense is Placid Oil Co., the operator of the offshore facilities under the parties' joint agreement.

Subject matter jurisdiction for this action was premised on the OCSLA. In particular, EP alleged that jurisdiction was proper pursuant to section 1349 of the OCSLA which explicitly grants the district courts jurisdiction over cases or controversies arising out of or in connection with operations on the OCS. Alternatively, EP argued that because section 1333 of the OCSLA provided the substantive law for the dispute, federal question jurisdiction was proper pursuant to 28 U.S.C. Sec. 1331.

The appellees, though, filed a motion to dismiss for lack of subject matter jurisdiction pursuant to Fed.R.Civ.P. 12(b)(1). They contended that jurisdiction was not proper under section 1349 because the current action would not affect any "operation" on the OCS and that section 1333 was never intended to provide subject matter jurisdiction to the district courts. The district court agreed and granted the motion to dismiss. EP and Manta Ray now appeal. ⁸

II. STANDARD OF REVIEW

This Court reviews a dismissal under Fed.R.Civ.P. 12(b)(1) de novo using the same standards employed by the district court. Benton v. United States, 960 F.2d 19, 21 (5th Cir.1992). Therefore, taking all of EP's and Manta Ray's factual allegations as true for purposes of this appeal, we must independently determine whether the district court properly dismissed the claim for lack of subject matter jurisdiction. Id.

III. JURISDICTION PURSUANT TO 43 U.S.C. Sec. 1349(b)(1)

The OCSLA was passed in 1953 to establish federal ownership and control over the mineral wealth of the OCS and to provide for the development of those natural resources. Gulf Offshore Co. v. Mobil Oil Corp., 453 U.S. 473, 480 n. 7, 101 S.Ct. 2870, 2876 n. 7, 69 L.Ed.2d 784 (1981). The OCSLA thus vests the federal government with a proprietary interest in the OCS and establishes a regulatory scheme governing leasing and operations there. Laredo Offshore Constructors, Inc. v. Hunt Oil Co., 754 F.2d 1223, 1227 (5th Cir.1985). Under the OCSLA, the law to be applied to the OCS is exclusively federal, albeit the law of the adjacent state is adopted as surrogate federal law to the extent that such law is applicable and not inconsistent with federal law. Rodrigue v. Aetna Casualty and Surety Company, 395 U.S. 352, 357, 89 S.Ct. 1835, 1838, 23 L.Ed.2d 360 (1969); 43 U.S.C. Sec. 1333(a)(2)(A). Moreover, original jurisdiction in the district courts is provided for in the OCSLA over all cases arising out of operations on the OCS for the development of the natural resources. Specifically, the pertinent section provides:

[T]he district courts of the United States 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, of the subsoil and seabed of the outer Continental Shelf, or which involves rights to such minerals....

43 U.S.C. Sec. 1349(b)(1).

Despite this broadly worded grant of original jurisdiction, the district court herein found that it lacked jurisdiction because the dispute did not involve an "operation" on the OCS. In explaining his reasoning, the district judge stated that

[t]his is a dispute over the ownership and division of property. It does not involve "operations" on the OCS. All exploration, development or production has long since ceased on the property. Plaintiff initiated this action solely for the purpose of selling the property and dividing the proceeds among the owners. There is no relationship to OCS operations, and resolution of this controversy will not alter the progress of production activities on the OCS.

(citations and footnotes omitted). There are two possible bases for this holding. First, the district court may have determined that there was no operation in this particular case as production from this facility had ceased and the offshore facilities had lain dormant for the last three years. Reasoning thus, the district court could have concluded that no decision it made would affect any ongoing operations on the OCS. Alternatively, the district court may have concluded that there was no jurisdiction because of the nature of the cause of action. Under that rationale, there would never be jurisdiction for any partition suit, whether or not the subject property on the OCS was producing minerals, because such a suit merely determines property rights and does not affect "operations" on the OCS. ⁹ For the reasons stated below, we reject both of these rationales.

First, we address the implication from the district court's opinion that, since the offshore facilities are not currently transporting minerals, there is no "operation" on the OCS. The term "operation" is not defined in the OCSLA. However, this Court has explored the meaning of that term in Amoco Production Co. v. Sea Robin Pipeline Co., 844 F.2d 1202 (5th Cir.1988). In that case, this Court found that the term "operation" contemplated the doing of some physical act on the OCS. Id. at 1207. Further, this Court found that it also contemplated the cessation of physical acts undertaken upon the OCS. Id.

In the instant case, there have been substantial acts undertaken on the OCS. Approximately fifty-two miles of pipe have been laid on the OCS floor and an offshore platform and other facilities have been erected. Further, acts on the OCS continued after this as, for a time, these facilities were used to transport minerals. The facilities presently lay dormant and the only current activity is ongoing maintenance. However, there undoubtedly will be acts taken on the OCS in the future. In particular, it is very likely that these facilities will be reused in some way to transport minerals again. ¹⁰ Alternatively, even if the facilities are never put back into operation, federal regulations mandate that the offshore facilities will eventually have to be cleared off the OCS. ¹¹

It is incontrovertible that, at least while the offshore facilities were being utilized to transport minerals, there was an "operation" involving the exploration, development or production of minerals such that there would be jurisdiction in the district court pursuant to section 1349 for cases arising out...