Taylor Energy Co. v. United States

• Decision Date: 03 September 2020
• Docket Number: 2019-1983
• Citation: 975 F.3d 1303
• Parties: TAYLOR ENERGY COMPANY LLC, Plaintiff-Appellant v. UNITED STATES, Defendant-Appellee
• Court: U.S. Court of Appeals — Federal Circuit

975 F.3d 1303

TAYLOR ENERGY COMPANY LLC, Plaintiff-Appellant

v.UNITED STATES, Defendant-Appellee

2019-1983

United States Court of Appeals, Federal Circuit.

Decided: September 3, 2020

Seth P. Waxman, Wilmer Cutler Pickering Hale and Dorr LLP, Washington, DC, argued for plaintiff-appellant. Also represented by Catherine Carroll, Samuel M. Strongin ; Alida C. Hainkel, Lauren C. Mastio, Carl D. Rosenblum, Jones Walker LLP, New Orleans, LA; Paul A. Debolt, Venable LLP, Washington, DC.

John Hugh Roberson, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, DC, argued for defendant-appellee. Also represented by Ethan P. Davis, Steven John Gillingham, Robert Edward Kirschman, Jr.

Before Lourie, Moore, and O'Malley, Circuit Judges.

O'Malley, Circuit Judge.

Under the Outer Continental Shelf Lands Act ("OCSLA" or the "Act"), the Federal Government regulates oil and gas operations on the Outer Continental Shelf ("OCS").¹ 43 U.S.C. § 1301. "[A]ll law on the OCS is federal law, administered by federal officials." Parker Drilling Mgmt. Servs., Ltd. v. Newton , ––– U.S. ––––, 139 S. Ct. 1881, 1886, 204 L.Ed.2d 165 (2019). The Act grants the federal government complete "jurisdiction, control, and power of disposition" over the OCS, while states have no "interest in or jurisdiction" over it. And, although the Act deems an adjacent state's laws to be federal law on the OCS to the extent they are "applicable and not inconsistent" with other federal laws and regulations, state law cannot be adopted as surrogate federal law if federal law addresses the relevant issue. Parker Drilling , 139 S. Ct. at 1889 (citing 43 U.S.C. § 1333(a)(2)(A) ).

The Court of Federal Claims recognized this relationship in the underlying proceedings. It dismissed Taylor's state law breach of contract claims because, inter alia , the disputed "contractual" requirements addressed in the agreement at issue were already governed by OCSLA regulations. Citing Rodrigue v. Aetna Casualty & Surety , 395 U.S. 352, 89 S.Ct. 1835, 23 L.Ed.2d 360 (1969), the Claims Court explained that state law cannot undercut a lessee's regulatory obligations on the OCS. Only two months later, the Supreme Court affirmed the precedent upon which the Claims Court relied in Parker Drilling Management Services, Ltd. v. Newton , holding that "OCSLA makes apparent that federal law is exclusive in its regulation of the OCS." 139 S. Ct. at 1889 (quotations omitted). "[T]o the extent federal law applies to a particular issue, state law is inapplicable." Id.

Despite the Court's clear holding in Parker Drilling , Taylor argues on appeal that the Claims Court's Rule 12(b)(6) dismissal was erroneous. It contends that the agreement somehow transformed Taylor's regulatory obligations into separate contractual obligations, and that a breach of these independent contractual obligations, under Louisiana contract law, may dissolve the security interest and decommissioning requirements mandated by OCSLA federal regulations. We disagree. The Court's precedent, particularly Parker Drilling , establishes that, for OCS-based claims, state law cannot contravene federal law. Despite Taylor's attempt to disguise its regulatory obligations as contractual ones, the Court's precedent applies in these circumstances. Accordingly, we reject Taylor's efforts to circumvent its regulatory duty to address the 14-mile oil slick flowing from its leaking wells by purporting to assert claims under Louisiana state law.

Because OCSLA regulations address the arguments underlying Taylor's contract claims, we conclude that Louisiana state law cannot be adopted as surrogate law and that Taylor's complaint fails to state a claim upon which relief may be granted. We therefore affirm.

I. BACKGROUND

A. A Lessee's Statutory and Regulatory Obligations on the Outer Continental Shelf

The Department of the Interior ("DOI") and its administering arms, the Bureau of Ocean Energy Management ("BOEM") and the Bureau of Safety and Environmental Enforcement ("BSEE"), promulgate and enforce the regulations necessary to administer oil and gas leases under the OCSLA. 43 U.S.C. §§ 1334, 1348. Oil and gas producers, moreover, are subject to regulations promulgated under the National Oil and Hazardous Substances Pollution Contingency Plan ("NCP"), which provide the organization and procedures for responding to oil pollution. See 40 C.F.R. § 300. Together, these regulations highlight two themes: OCS lessees are (1) held to certain regulatory obligations under federal law; and (2) strictly liable for any pollution generated by their oil and gas operations.

A company holding a lease to oil and gas wells on the OCS accrues certain "pollution prevention" obligations. 30 C.F.R. § 250.300(a). Among these is the obligation to "decommission"—winding down operations on the OCS after the lease ends. 30 C.F.R. §§ 30 C.F.R. § 250.1700(a) (defining decommissioning as "[e]nding oil, gas, or sulphur operations" and "[r]eturning the lease or pipeline right-of-way to a condition that meets the requirements of regulations of BSEE and other agencies that have jurisdiction over decommissioning activities."). To fulfill its decommissioning obligations, an OCS lessee must, among other duties, permanently plug all wells; remove all platforms and other facilities; decommission all pipelines; and clear the seafloor of all obstructions.

30 C.F.R. § 250.1703(b) – (e). A lessee must complete its decommissioning obligations within one year after the lease terminates, unless BSEE authorizes alternate procedures or departures.² 30 C.F.R. §§ 250.1725, 250.141.

To ensure that lessees have the financial means to satisfy their regulatory obligations under the OCSLA, lessees must maintain a bond or other security instrument. 30 C.F.R. § 556.900. For example, BOEM will not issue a new lease or approve the assignment of an existing lease until the lessee maintains a "lease or area-wide" bond with the Regional Director. 30 C.F.R. § 556.900(a). See also 30 C.F.R. § 556.105 ("Regional Director means the BOEM officer with responsibility and authority for a Region within BOEM."). This is not the only type of security interest a lessee might expect to maintain, however. BOEM may determine, for example, that "additional security" is necessary "to ensure [a lessee's] compliance with the obligations under [its] lease," and has broad discretion to determine the supplemental amount. 30 C.F.R. §§ 556.901(d) – (e). In adjusting the amount of additional bond required, the agency may consider "cumulative decommissioning obligations." 30 C.F.R. § 556.901(c) ("[T]he authorized officer may accept a lease surety bond in an amount less than the prescribed amount, but not less than the amount of the cost for decommissioning."); 30 C.F.R. § 556.901(e) ("The Regional Director will consider potential underpayment of royalty and cumulative decommissioning obligations.").

BOEM may alternatively authorize lessees to establish "lease-specific abandonment accounts" to satisfy their decommissioning obligations. 30 C.F.R. § 556.904. Funds deposited into a lease-specific abandonment account must be "pledged to meet [the lessee's] decommissioning obligations" and cover "all decommissioning costs as estimated by BOEM within the timeframe the Regional Director prescribes." 30 C.F.R. § 556.904(a)(1)–(2). Funds may not be withdrawn without the written approval of the Regional Director. 30 C.F.R. § 556.904(a).

An OCS lessee's duties are not limited to preventative and decommissioning measures, moreover. Under the Clean Water Act, facility owners are strictly liable for any discharge of oil in navigable waters unless an exception applies.³ 33 U.S.C. § 1321 (1982). The Oil Pollution Act further establishes that a lessee whose facilities discharge oil is considered a "responsible party," and is liable for all removal costs. See 33 U.S.C. § 2702. A responsible party for an offshore facility is responsible for up to all removal costs plus $75,000,000. 33 U.S.C. § 2704(a)(3).

B. Taylor's OCS Leases and the MC-20 Trust Agreement

In 1994, Taylor became the lessee and operator of three leases covering areas on the OCS. Taylor Energy Co. v. United States , 142 Fed. Cl. 601, 605 (Fed. Cl. 2019) (" Taylor Energy "); J.A. 37. The leases, which were set to expire on June 28, 2007, incorporated then-present and any later-enacted OCSLA-related regulations. J.A. 193, 199, 205. They also required Taylor to leave the leased area "in a manner satisfactory to the [Regional] Director." J.A. 196, 201, 209. During the lifetime of these leases, Taylor and its predecessor drilled twenty-eight wells, each connected to a single oil platform called MC-20. Taylor Energy , 142 Fed. Cl. at 605. In 2004, prior to the leases’ expiration, Hurricane Ivan toppled Taylor's platform onto the ocean floor, resulting in significant damage to the wells and rendering them inoperable. Id. Taylor surveyed the wreckage and discovered oil leaking from the area, but took no actions to stop the leaks at the time. J.A. 290–91.

Approximately three years later, Taylor's MC-20 leases expired. J.A. 39 § 16. Accordingly, DOI's Mineral Management Service ("MMS")—the precursor agency to BSEE and BOEM—ordered Taylor to decommission all the wells at MC-20 within one year. J.A. 39. At that point, twenty-five of the twenty-eight wells at MC-20 needed to be decommissioned. J.A. 38. Due to complications from the hurricane damage, Taylor wrote to MMS requesting a departure from the default one-year decommission period. J.A. 825–29. See also 30 C.F.R. § 250.1710. It asked for an "indefinite time extension" for the completion of its well-abandonment and structure-removal obligations, insisting that it would keep MMS informed as to its progress. J.A. 826. MMS rejected Taylor's request for an "indefinite term," but it did not require Taylor to complete its MC-20 decommissioning obligations within one year.

By 2008, Taylor had sold and assigned all of its...