188 F.3d 596 | 5th Cir. | 1999
Lead Opinion
This case presents the question of the back-up responsibility of a mineral lessee for longshoremen’s compensation for the employee of a drilling contractor. Donald Sketoe and the Office of Workers’ Compensation Programs (the Director) appeal an adverse decision of the Benefits Review Board (BRB), holding that Exxon was not obligated to pay Sketoe’s compensation benefits. Because of the difference between the contractual obligation of Ske-toe’s employer to Exxon and Exxon’s obligation to its lessor, we affirm.
I. Background
The United States Government executed an oil and gas lease of a tract off the Louisiana coast to Exxon. Exxon subsequently contracted with Dolphin Titan (DT) to drill on the tract. Sketoe was an employee of DT who worked on the Exxon-tract operation. In the course and scope of his employment, Sketoe injured his hand. DT’s compensation carrier, Northumberland Insurance Co., paid Ske-toe’s compensation benefits until it became insolvent. Following Northumberland’s bankruptcy, DT assumed payment of the benefits. Approximately one year later, DT also became insolvent. Sketoe then filed a claim against Exxon for payment of the benefits, alleging that section 904(a) of the Longshore and Harbor Workers’ Compensation Act (LHWCA),
The first administrative law judge (ALJ) to hear the case ruled that Exxon was liable under section 904(a) and the analysis found in Director v. National Van Lines, Inc,
II. Discussion
We review an appeal from the BRB de novo and will affirm if the judgment of the ALJ is “supported by substantial evidence and consistent with the law.”
A. Construction of Section 904(a)
LHWCA section 904(a) governs Exxon’s potential liability for payment of Sketoe’s compensation benefits. It states:
*598 Every employer shall be liable for and shall secure the payment to his employees of the compensation payable under sections 907, 908, and 909 of this title. In the case of an employer who is a subcontractor, only if such subcontractor fails to secure the payment of compensation shall the contractor be liable for and be required to secure the payment of compensation. ...7
The injured employee claiming the benefits of section 904(a) against a “contractor” must have been employed by a “subcontractor.” The only difficulty is understanding what Congress intended by its use of the word “contractor.” We apply the term’s ordinary meaning, informed by the intent of the legislature as it may be divined from the design of the Act.
is strictly applicable to any person who enters into a contract, but is commonly reserved to designate one who, for a fixed price, undertakes to procure the performance of works or services on a large scale, or the furnishing of goods in large quantities, whether for the public or a company or individual. Such are generally classified as general contractors (responsible for entire job) and subcontractors (responsible for only portion of job; e.g., plumber, carpenter).9
In light of Congress’s choice of the coordinate term, “subcontractor,” construing the statute to require a “general contractor” accords with the common understanding of “contractor.” It also conforms to the purposes of the provision, which is aimed at deterring “unscrupulous employers from dividing their work among a number of smaller, uninsured entities” and which encourages general employers to contract with adequately insured subcontractors.
The District of Columbia Circuit has considered the application of section 904(a).
A general employer will be held secondarily liable for workmen’s compensation when the injured employee was engaged in work either that is a subcontracted fraction of a larger project or that is normally conducted by the general employer’s own employees rather than by independent contractors.13
The essential feature is that the injured claimant must have worked pursuant to a double set of contractual obligations.
The BRB has long been cognizant of the distinction between owners and general contractors for purposes of section 904(a) coverage. In Dailey v. Troth,
[i]n contrast to the National Van Lines situation, here Starlit had not been contractually obligated to perform the duties which claimant was executing at the time of his injury; the work performed by [EHT] and claimant thus did not constitute “a subcontracted fraction of a larger project.”18
In the present case, the BRB reversed the first ALJ’s determination that National Van Lines stated the appropriate test for liability under section 904(a), replacing it with the test announced in Chavers. We hold that neither case announces a “test” for application of the statute, for the language of the statute is plain as written. Whether a case fits the provision must be decided on its particular facts. Chavers was decided under Louisiana’s statutory employer law, a state workers’ compensation provision that is significantly different from the federal statute we consider today. In Chavers we expressly noted that “[t]he statutory language vital to the current inquiry is found in the phrase: ‘part of his trade, business or occupation.’ ”
The LHWCA distinguishes between employers who are owners and those who are general contractors working under contractual obligations to others. If, and only if, we determine that Exxon delegated “the performance of portions of its contractual obligations” to DT — as was the case between National and Eureka, but not Starlit and EHT — then the section 904(a) relationship was formed and Exxon is statutorily liable for Sketoe’s workers’ compensation payments.
B. Exxon’s Status as an Oil and Gas Lessee
We consider this offshore oil and gas lease in light of Louisiana mineral
In Louisiana, ownership confers direct, immediate, and exclusive authority over a thing.
The Louisiana mineral lease includes features that are characteristic of both contracts and rights in property.
The extent to which a Louisiana mineral lease creates contractual or property rights and obligations has been the subject of long debate among the legislature, the courts, and the “oil fraternity.”
It is desirable to recognize that the combined substance of the patchwork of existing jurisprudence and statutes together with the functional realities of the mineral leasing transaction make it clear that though the mineral lease is a hybrid institution, it is a real right and should be recognized as such.... All things considered, the lease has the major characteristics of a real right: the mineral lessee may follow the land, regardless of transfers of ownership; the mineral lessee may assert his rights against the world just as the proprietor of any other real right; he may enjoy directly and draw from the land a part of its economic advantages by appropriating a wasting asset; he has certain rights of preference; and he holds a right that is in reality susceptible of a type of possession through exercise.37
We believe that the obligations to drill found in the present lease arrangement— namely, express obligations in the primary term and for protection from drainage, and implied otherwise in the various obligations of prudent operation — are best said to be correlative and incidental of the real rights transferred by it, namely, the exclusive power to prospect for, produce, and take possession of oil and gas.
Sketoe and the Director assert that the Fifth Circuit has previously decided the question. In Nations v. Sun Oil Co. (Del.), the issue was whether Sun Oil was “a contractor and ... Mississippi Welding a subcontractor ... so as to make Nations a statutory employee of Sun Oil” under Mississippi’s statutory employer law.
Prior to oral argument, Sun Oil asserted in this court that it was the lessee of the mineral rights at the site. If this statement is corroborated or conceded, that may be sufficient to make Mississippi Welding a subcontractor, for the lease of mineral rights carries an implied covenant that the lessee will exercise the duty of a prudent'operator to develop leased minerals. If Sun Oil undertook this duty then the contract between Sun Oil and Mississippi Welding would be a subcontract in which Mississippi Welding contracted to perform a portion of the activity Sun Oil was already contractually obligated to perform.44
Nations does not control this case. The lease was not available in the record, and the statement was advisory and gratuitous. The Mississippi Supreme Court has subsequently ruled in a manner that is directly contrary to the reasoning expressed in Nations. In Nash v. Damson Oil Corp.,
Without question Damson is a contractor in a generic sense. Damson has a contractual relationship with the owners of the land imposing various duties and obligations upon each. Damson is also a contractor in the sense that it has a contract with Trigger imposing obligations and duties upon each. The operative point is that Damson’s interest, use and activities with respect to the premises are wholly different in nature from those of one ordinarily considered a general or prime contractor — the sort of contractor we believe contemplated by Doubleday. Damson’s position with respect to the premises is similar to that of [MP & L] in Falls and unlike that of [the subcontractor] in Doubleday. Damson is an operator or even in a sense an owner pro hac vice, a lessee. On the other hand, Damson lies outside the common understanding of such terms as “prime contractor” or “general contractor”. Therefore, Damson is not the sort of “contractor” within the meaning and contemplation of [the MWCA].59
In a footnote immediately following this statement, the court recognized that “[i]n briefs and at argument, the parties have discussed the case of Nations v. Sun Oil Co. We trust it will be apparent that anything in Nations contrary to our decision today should be considered with care.”
The holding of a previous panel will bind this panel unless the pronouncements are merely dictum or are pretermitted by “a clearly contrary subsequent holding of the highest court of the state.”
Our decision in Pure Oil Co. v. Snipes,
The only Louisiana case applying a two contract statutory employer provision to an oil and gas lessee is equivocal about the nature of the drilling obligation. In a tort suit brought by an injured drilling worker against the oil and gas lessee, the court of appeal held that the lessee was not a statutory employer for summary judgment purposes.
In sum, we conclude that Exxon is most appropriately considered as the owner of a real right, with a duty that was correlative and incidental of that real right, when it engaged the drilling services of DT. It was not a general contractor passing its own purely contractual obligation to its subcontractor. For this reason, Exxon is not liable under section 904(a).
AFFIRMED.
. 33 U.S.C. §§ 901-950.
. 613 F.2d 972 (D.C.Cir.1979).
. 716 F.2d 315 (5th Cir.1983).
. Total Marine Servs., Inc. v. Director, 87 F.3d 774, 776 (5th Cir.1996).
. See Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43, 104 S.ct. 2778, 2781-82, 81 L.Ed.2d 694 (1984).
.Smiley v. Citibank (S.D.) N.A., 517 U.S. 735, 739-41, 116 S.Ct. 1730, 1732-33, 135 L.Ed.2d 25 (1996) (quoting Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 212, 109 S.Ct. 468, 473-74, 102 L.Ed.2d 493 (1988)); see Total Marine, 87 F.3d at 776-77 n. 2.
. 33 U.S.C. § 904(a) (emphasis added).
. See City of Dallas v. FCC, 118 F.3d 393, 395 (5lh Cir.1997); Mississippi Poultry Ass’n, Inc. v. Madigan, 31 F.3d 293, 300 & n. 39 (5th Cir.1994)(en banc).
. Black’s Law Dictionary 295 (5th ed.1979) (emphasis added).
. See National Van Lines, 613 F.2d at 986.
. See id. at 987 n. 58.
. The case involved application of the District of Columbia’s workers’ compensation statutory employer provision. The District has adopted the LHWCA for its workers' compensation scheme. See id. at 976 n. 2.
. Id. at 986.
. The language in the latter half of the statement is dictum, for the facts in National Van Lines clearly involved two separate contractual obligations. See id. at 986-87. Neither is that problem presented by the instant appeal.
. Id. at 987 (citing Thorsheim v. State, 469 P.2d 383, 388-89 (Alaska 1970)).
. Id. at n. 58.
. 20 Ben. Rev. Bd. Serv. (MB) 75 (1986).
. Id. (quoting National Van Lines, 613 F.2d at 986).
. Chavers, 716 F.2d at 316 (quoting La.Rev. Stat. Ann. § 23:1061 (West 1998)).
. See National Van Lines, 613 F.2d at 987.
.See 43 U.S.C. § 1333(a)(2)(A). The following clauses in the offshore lease are relevant to the disposition of this case. A habendum clause in section five establishes that the lease will remain in effect during a primary term of five years and for "so long thereafter as oil or gas may be produced from the leased area in paying quantities.” Section three contains specific obligations Exxon agreed to undertake, including the following:
The Lessee agrees ... [w]ilh respect to each lease year commencing prior to a discovery of oil and gas on the leased area, to pay the Lessor ... a rental[; and t]o diligently drill and produce such wells as are necessary to protect the Lessor from loss by reason of production on other properties or, in lieu thereof ... to compensate the Lessor for failure to drill and produce any such well. In the event that this lease is not being maintained in force by other production of oil or gas in paying quantities or by other approved drilling or reworking operations, such payments shall be considered as the equivalent of production in paying quantities for all purposes of this lease.
The delay rental clause follows the "unless” form. "Where an oil, gas and mineral lease contains such a provision, the intentional failure of the lessee to drill or to pay the delay rental on or before the date specified in the contract ipso facto terminates the lease....” Richard v. Tarpon Oil Co., 269 So.2d 261, 264 (La.Ct.App.1972). To protect the leasehold against drainage from wells on tracts not covered by the lease, the parties expressly provided that Exxon would either drill or pay substitute royalties. Finally, Louisiana law implies a duty of prudent operation, including an obligation to drill when a reasonably prudent operator would do so. See La.Rev.Stat. Ann. § 31:122 (West 1989) (reasonably prudent operator standard); La. Civ.Code Ann. art. 2710 (West 1996) (lessee must act as a good administrator). The lease includes a surrender clause, which provides the procedure for notice of surrender, preserves the lessor's rights in accrued rentals and royalties, and requires the lessee to abandon its wells in an appropriate condition.
. See, e.g., Viterbo v. Friedlander, 120 U.S. 707, 712-13, 7 S.Ct. 962, 964-65, 30 L.Ed. 776 (1887); Patrick H. Martin & J. Lanier Yeales, Louisiana and Texas Oil & Gas Law: An Overview of the Differences, 52 La L.Rev. 769, 769-823 (1992).
. See La.Rev.Stat. Ann. § 31:2.
. See La. Civ.Code Ann. art. 477(A) (West Supp.1999).
. La.Rev.Stat. Ann. § 31:6.
. See id. § 31:15.
. See id. § 31:16 cmt. (noting that the mineral lease is "a hybrid institution”); see generally 1A W.L. Summers, The Law of Oil and Gas § 167 (2d ed. 1954 & Supp.1999); Martin & Yeates, supra, at 823-26.
. See La.Rev.Stat. Ann. § 31:2; Massie v. Inexco Oil Co., 798 F.2d 777, 779 (5th Cir.1986).
. La.Rev.Stat. Ann. § 31:114.
. See Reagan v. Murphy, 235 La. 529, 105 So.2d 210, 215 (La.1958).
. See La.Rev.Stat. Ann. §§ 31:16,: 18; St. Charles Land Trust v. St. Amant, 253 La. 243, 217 So.2d 385, 390 (La.1968) ("Under Louisiana law, the mineral leases and servitudes held by the trustees are immovable property.”).
. See 3 A.N. Yiannopoulis, Louisiana Civil Law Treatise: Personal Servitudes § 223, at 450 (3d ed.1989).
. Id. at 448-49.
. See La.Rev.Stat. Ann. § 31:116.
. See La.Rev.Stat. Ann. § 31:120.
. See, e.g., Reagan v. Murphy, 235 La. 529, 105 So.2d 210, 213, 211-15 (La.1958); Mire v. Sunray DX Oil Co., 285 F.Supp. 885, 889-90 (W.D.La.1968); Martin & Yeates, supra, at 823-26 (all recounting the course of legislative and judicial decisions over the status of a mineral lease as conveying rights in realty or merely as personal contracts).
. La.Rev.Stat. Ann. § 31:16 cmt.
. Cf. La. Civ.Code Ann. art. 1763 (West 1987); Mire, 285 F.Supp. at 889; Hawthorne Oil & Gas Corp. v. Continental Oil Co., 368 So.2d 726, 731-32 (La.Ct.App.), rev'd on other grounds, 377 So.2d 285 (La.1979).
. See, e.g., Carter v. Arkansas Louisiana Gas Co., 213 La. 1028, 36 So.2d 26, 30 (La.1948). Cf. La. Civ.Code Ann. art. § 1764.
. See Carter, 36 So.2d at 28 ("[T]he main consideration of a mineral lease is the development of the leased premises for minerals....”); Thomas A. Harrell, A Mineral Lessee's Obligation to Explore Unproductive Portions of the Leased Premises in Louisiana, 52 La.L.Rev. 387, 387 (1991) ("[T]he lessor’s return from the contract is dependent upon production occurring from the land." (emphasis added)).
. 695 F.2d 933, 937 (5th Cir.1983).
. Id. (internal quotation marks omitted).
. See id. at 938.
. Id. at 937-38.
. 480 So.2d 1095 (Miss.1985).
. See id. at 1096.
. See id.
. See id. at 1097.
. See id. at 1097-98.
. See id. at 1098.
. Id.
. 418 So.2d 823 (Miss. 1982).
. Nash, 480 So.2d at 1098.
. Id.
. 477 So.2d 254 (Miss.1985).
. Nash, 480 So.2d at 1099.
. Falls, 477 So.2d at 258.
. Nash, 480 So.2d at 1100.
. Id.(citation omitted).
. Id. at n. 1 (citation omitted).
. See id. at 1101 (Roy Noble Lee, P.J., with whom Patterson, C.J., Walker, P.J., and Hawkins, J., join concurring).
. FDIC V. Abraham, 137 F.3d 264, 269 (5th Cir.1998).
. 293 F.2d 60 (5th Cir.1961).
. See id. at 62.
. See id. at 63.
. See id.
. See id. at 63-64.
. See id. at 62.
. See id. at 67-68.
. Sketoe argues unpersuasively , that we should read cases interpreting the statutory employer provision broadly and take a narrow reading of those considering the exclusive remedy provision. He argues that this approach furthers the purposes of workers' compensation acts. We disagree. We interpret both provisions identically to protect the integrity of the workers' compensation system’s quid pro quo, which exchanges no-fault liability with limited compensation benefits and immunity from tort liability. See Taylor v. Bunge Corp., 845 F.2d 1323, 1326 (5th Cir.1988).
. Snipes, 293 F.2d at 68.
. See Burleigh v. South La. Contractors, Inc., 525 So.2d 87, 90-91 (La.Ct.App.1988).
. See id. at 90.
. Id. (internal quotation marks omitted).
. Id.
. Id. at 90-91.
. See id.
Dissenting Opinion
dissenting:
Convinced that Exxon is a “contractor” under § 904(a) and is thus liable for Ske-toe’s injury, I must respectfully dissent.
I agree with the majority’s framing of the issue for “two contract” liability under § 904 — that a contractually obligated principal contracts with a subcontractor to perform all or part of the required duties. I also agree that the BRB unnecessarily muddled the statutory language by applying the Louisiana workers’ compensation law found in Chavers v. Exxon Corp.
I differ with the majority, however, in its decision that Exxon was not contractually obligated with the United States when it leased the offshore property. First, Exxon was contractually obligated to perform drilling activities under its lease with the Department of the Interior if it wished to retain the lease. Section three of the lease, entitled “Obligations of Lessees,” states that Exxon is required to pay a delay rental every year to the United States prior to the production of oil or gas.
Exxon also was contractually obligated to drill because of Louisiana Mineral Code provisions specifically requiring a mineral lessee to develop leased property as a reasonably prudent operator for the mutual benefit of both parties. Section 122 of the Louisiana Mineral Code, La.Rev.Stat. § 31:122, is entitled “Lessee’s obligation to act as reasonably prudent operator” and reads as follows:
A mineral lessee is not under a fiduciary obligation to his lessor, but he is bound to perform the contract in good faith and to develop and operate the property leased as a reasonably prudent operator for the mutual benefit of himself and his lessor. Parties may stipulate what shall constitute reasonably prudent conduct on the part of the lessee.
The comments under this article, which are there to aid the understanding and application of the article, are particularly
The comments continue with a listing of the four obligations of a prudent operator: (1) the obligation to develop known mineral producing formations; (2) the obligation to explore and test all portions of the leased premises after discovery of minerals in paying quantities; (3) the obligation to protect the leased property against drainage by wells located on neighboring property; and (4) the obligation to produce and market minerals discovered in paying quantities. Each of the four obligations is posited in the setting of a “reasonable, prudent operator.”
By relegating these duties to be mere incidents of ownership, the majority ignores both the explicit obligations under Exxon’s contract, as well as the implicit obligations as a reasonably prudent operator under the Louisiana Mineral Code and interpretive jurisprudence. It is a simple fact that Exxon had contractual duties that it in turn passed on to Dolphin Titan. This is all that § 904(a) requires.
The majority’s position also contravenes the purpose underlying contractor liability in § 904(a). The purpose of this section is to
protect injured employees engaged in a common enterprise from the irresponsible failure of their immediate employer to insure. By imposing secondary liability on the general employer or contractor, the provision deters unscrupulous employers from dividing their work among a number of smaller, uninsured entities, and creates an incentive for the general employer to insist that his subcontractors be adequately insured.5
My conclusion that Exxon is a “contractor” fulfills these purposes. Exxon is in a superior bargaining position to ensure that its subcontractors carry the requisite authorized insurance. Its failure to assure that Dolphin Titan had authorized insurance is at the essential core of the current dispute. The policies underlying secondary contractor liability fully warrant placement of liability upon Exxon.
Because Exxon is contractually obligated to drill and in turn contracted with Dolphin Titan to perform that drilling on its behalf, I would conclude that Exxon is a “contractor” responsible for compensation under § 904(a) and that the Benefits Review Board erred in denying Sketoe’s claim against Exxon. Accordingly, I must respectfully dissent.
. 716 F.2d 315 (5th Cir.1983).
. Section 3(a)(1) of the lease states that the lessee agrees ''[w]ith respect to each lease year commencing prior to a discovery of oil or gas on the leased area, to pay the Lessor on or before the first day of each such year, a rental of $3.00 per acre or fraction thereof.”
. La. Civ.Code art. 2710.
. See, e.g., Carter v. Arkansas Louisiana Gas. Co., 213 La. 1028, 36 So.2d 26 (1948).
.Director, OWCP v. National Van Lines, Inc., 613 F.2d 972, 986 (D.C.Cir.1979).