Laredo Offshore Constructors, Inc. v. Hunt Oil Co.

• Decision Date: 11 March 1985
• Docket Number: No. 84-2045,84-2045
• Citation: 754 F.2d 1223,1986 AMC 237
• Parties: LAREDO OFFSHORE CONSTRUCTORS, INC., Plaintiff-Appellant, v. HUNT OIL COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1223

754 F.2d 1223

1986 A.M.C. 237

LAREDO OFFSHORE CONSTRUCTORS, INC., Plaintiff-Appellant, v. HUNT OIL COMPANY, Defendant-Appellee.

No. 84-2045.

United States Court of Appeals Fifth Circuit.

March 11, 1985.

Sharpe & Kajander, Stuart B. Collins, Houston, Tex., for plaintiff-appellant.

Shank, Irwin & Conant, Allen Weed, Linda A. Hale, Dallas, Tex., for defendant-appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before GARZA, RANDALL and TATE, Circuit Judges.

RANDALL, Circuit Judge:

In this case, we are called upon to determine whether a district court has subject matter jurisdiction over a contract dispute involving the construction of a stationary offshore platform on the Outer Continental Shelf outside state territorial waters. We hold that, insofar as the alleged breach of contract relates directly to platform construction, the controversy is one "arising out of, or in connection with" an operation conducted on the Outer Continental Shelf involving the development of mineral resources and therefore is encompassed within the district court's grant of original jurisdiction under the Outer Continental Shelf Lands Act. Accordingly, we reverse the judgment of the district court and remand with instructions.

I.

On November 23, 1981, Hunt Oil Company (Hunt) and Laredo Offshore Constructors, Inc., (Laredo) entered into a contract for the transportation and installation of an offshore oil and gas platform to be permanently affixed to the ocean floor on the Outer Continental Shelf. Under the contract, Laredo was to construct the platform at a well site 25 miles off the coast of Louisiana and to furnish all services and materials necessary and incident thereto. The purpose of the platform was to protect the wellhead of a gas well recently completed by Hunt and to provide access to that wellhead during production. The parties agree that the construction of the platform was a necessary step in bringing the well into final production, but that Laredo had nothing to do with either the drilling of the gas well or final oil and gas production.

The contract sets forth complete details of the work to be performed by Laredo, terms and conditions of payment, and other responsibilities of the parties. ¹ After the transportation of all necessary equipment and labor to the well site, Laredo was to begin construction of the platform by setting a jacket over the wellhead. At that point, four piles were to be driven into the subsurface in order to secure the jacket to the seabed. Once the piles were driven to final penetration, Laredo was to weld the top of the platform jacket legs to the tops of each pile. Laredo was then to cut the piles off at the proper elevation, fit the deck onto the structure, and weld it in place. Finally, the entire structure was to be touched up with paint.

On July 11, 1983, Laredo instituted the instant action for nonpayment under the contract in the District Court for the Southern District of Texas. In its complaint, Laredo asserted that it performed its obligations under the contract until dismissed from the well site by Hunt. Hunt's subsequent failure to make payment due for the services performed, Laredo alleged, constituted breach of the contract. Hunt, in its response, contended that Laredo had driven the four piles into the subsurface upside down and, in attempting to rectify this error, caused further damage to the structure. Hunt explained that it had terminated the contract and dismissed Laredo because of the improper installation of the piles, the additional damage caused by Laredo, and the belief that Laredo's personnel and equipment could not safely complete the work.

Laredo's complaint was predicated on the admiralty jurisdiction of the district court over maritime contracts. ² Hunt moved the court to dismiss the action for lack of subject matter jurisdiction, arguing that the principal subject matter of the contract at issue was the construction of an offshore oil platform, which Hunt alleged was not within the admiralty jurisdiction of the district court. Laredo contended that admiralty jurisdiction did exist since the contract contemplated the use of a considerable number of vessels and seamen and concerned offshore drilling for oil and gas, itself a traditional maritime activity. The district court granted Hunt's motion, reasoning that the litigation involved that portion of the contract relating to the actual building of the platform, which was held not to be maritime activity. From this order, Laredo instituted the present appeal.

On appeal, we raised sua sponte the additional question whether the district court had jurisdiction under the Outer Continental Shelf Lands Act (OCSLA), 43 U.S.C. Secs. 1331, et seq., over this suit and requested further briefings. In its supplemental brief, Hunt, while maintaining its position that the district court lacks admiralty jurisdiction over the instant case, now argues that jurisdiction does exist under the OCSLA. Laredo in its supplemental brief makes two arguments. First, Laredo asserts that the case at bar is not cognizable under the OCSLA but is within the admiralty jurisdiction of the district court. Second, Laredo takes the position that, even if the OCSLA does apply, maritime law should nonetheless govern the resolution of this case. We examine first the applicability of the OCSLA to the present context and then whether principles of admiralty control irrespective of that Act.

II.

We begin our analysis of the jurisdictional reach of the OCSLA by looking to the language of the statute. The OCSLA extends the political power and laws of the United States to the subsoil and seabed of the Outer Continental Shelf and to the artificial islands, installations, and other devices erected thereon for the purpose of exploring for, developing, or producing subsurface resources. 43 U.S.C. Sec. 1333(a)(1). ³ Toward this end, the OCSLA vests district courts with original jurisdiction over all cases arising out of such operations. The pertinent provision 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....

Id. Sec. 1349(b). "Development" is defined in the Act as "those activities which take place following discovery of minerals in paying quantities, including ... platform construction." Id. Sec. 1331(l ) (emphasis supplied).

As the district court noted below, this litigation involves only that portion of the contract between Laredo and Hunt that relates to the actual building of a platform on the Outer Continental Shelf. Under the Act, such construction is explicitly included within the range of activities constituting the "development" of the subsurface. It seems clear, therefore, that OCSLA jurisdiction over "cases and controversies arising out of or in connection with" these development operations, at least under the plain meaning of the statute, squarely encompasses the present litigation.

Laredo, however, asserts that, in enacting the OCSLA and its subsequent amendments, Congress did not intend to vest district courts with the jurisdiction to resolve under the Act contractual controversies such as the one at bar. Rather, Laredo contends, Congress adopted the OCSLA for the narrow purpose of establishing policies and procedures for managing Outer Continental Shelf oil and natural gas resources. Laredo's argument is that the OCSLA consequently must be construed in the light of these regulatory purposes, which do not, at least to Laredo, implicate the need to extend original jurisdiction to contract disputes over platform construction. ⁴

There is no question that, in enacting the OCSLA, Congress was most concerned with establishing federal control over resources on the Outer Continental Shelf. The legislative history of the OCSLA, for example, reveals that the Act was originally enacted in 1953 in response to a congressional belief that the federal government lacked legal authority to lease out various sections of the Outer Continental Shelf for resource development. The OCSLA thus vests the federal government with a proprietary interest in the Outer Continental Shelf and establishes a regulatory scheme governing leasing and operations there. ⁵ Similarly, the 1978 amendments to the OCSLA were adopted principally to achieve regulatory ends. Congress amended the OCSLA to update government control of resource development on the Outer Continental Shelf and to ensure the promotion of the dual policies of resource production and environmental protection. ⁶ Nonetheless, for the reasons discussed below, we think that Congress also intended the Act to serve other, related objectives ⁷ and that Laredo's conception of the scope of the OCSLA is correspondingly narrow.

In Rodrigue v. Aetna Casualty & Surety Co., 395 U.S. 352, 89 S.Ct. 1835, 23 L.Ed.2d 360 (1969), the Supreme Court in an exhaustive review of the OCSLA's legislative history, observed that "the purpose of the [OCSLA] was to define a body of law applicable to the seabed, the subsoil, and the fixed structures ... on the Outer Continental Shelf." Id. at 355, 89 S.Ct. at 1837. That this body of law, and the district court's correlative original jurisdiction were intended to govern the full range of potential legal problems that might arise in connection with operations on the Outer Continental Shelf is evidenced by both the Act and its legislative history. Section 1333(a)(2) provides that, to the extent they are not inconsistent with federal laws, the civil and criminal laws of the adjacent state are to be applied as federal law. If the OCSLA was intended only to govern those cases directly implicating the regulatory and...