TAYLOR ENERGY COMPANY LLC, Plaintiff-Appellant v. UNITED STATES, Defendant-Appellee
2019-1983
United States Court of Appeals for the Federal Circuit
September 3, 2020
Appeal from the United States Court of Federal Claims in No. 1:16-cv-00012-NBF, Senior Judge Nancy B. Firestone.
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.
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
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
Despite the Court‘s clear holding in Parker Drilling, Taylor argues on appeal that the Claims Court‘s
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.
A company holding a lease to oil and gas wells on the OCS accrues certain “pollution prevention” obligations.
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.
BOEM may alternatively authorize lessees to establish “lease-specific abandonment accounts” to satisfy their decommissioning obligations.
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
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
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
By 2008, Taylor had sold and assigned all of its remaining OCS leases. J.A. 40. MMS, which held approval authority over the assignment of OCS leases, allowed the assignment but placed a condition on the sale: Taylor needed to set aside part of the sale proceeds to fund all decommissioning obligations at MC-20. J.A. 40. Accordingly, on March 19, 2008, Taylor as the “Settlor,” MMS as the “Beneficiary,” and JPMorgan Chase Bank as the “Trustee” executed a trust agreement (“the Trust Agreement“). J.A. 72. The Trust Agreement also incorporates an Agreement to Provide Additional Bond (“the Bond Agreement“), which provides details about the “additional bond” required by MMS. J.A. 93.
As described by the document, the purpose of the agreement is to provide financial security for “certain obligations to plug and abandon wells, remove a portion of the platform and facilities, clear the seafloor of obstructions, and take corrective action associated with wells and facilities on [MC-20].” J.A. 72, 74. Schedule A provides the cost estimates for Taylor‘s regulatory obligations, including: (1) plugging and abandoning twenty-five wells; (2) removing the platform deck; (3) clearing the seafloor of obstructions; (4) removing pipelines; and (5) removing contaminated soil. J.A. 41 ¶ 25; J.A. 97–98. Notably, the Trust Agreement incorporates OCSLA decommissioning regulations in two areas. First, Schedule A states that Taylor‘s work “will conform to MMS regulations contained in
Second, the Trust incorporates the terms of the MC-20 leases, which each expressly incorporate OCSLA regulations. J.A. 193, 199, 205. For Taylor to receive reimbursement for completing its decommissioning obligations, the government must confirm the work was conducted “in material compliance with all applicable federal laws and ... regulations ... [and with] the terms and conditions of the Lease(s).” J.A. 86. The Trust Agreement, however, also includes a choice of law provision that it “shall be governed by and construed in accordance with the laws of the State of Louisiana without giving effect to that state‘s conflict of laws rules.” J.A. 94 ¶ 6.9.
Under the Bond Agreement, Taylor deposited $466,280,000 into a trust account based on MMS‘s “Area-wide Bond Order,” and an additional $200,000,000 in compliance with MMS‘s “Supplemental Bond Order.”
C. Taylor‘s Decommissioning Efforts
Following the termination of Taylor‘s MC-20 leases, Taylor attempted to fulfill its decommissioning obligations. This, however, proved to be difficult. The unique wreckage that resulted from the hurricane hampered “conventional plugging and abandonment techniques.” J.A. 39. Thus, the Coast Guard, Taylor, and MMS established a “Unified Command” to direct all response efforts to contain and clean up the spill at MC-20. J.A. 39. Through the Unified Command, the participants performed studies and created plans to best perform clean-up at MC-20. The government ultimately approved a departure from certain standard decommissioning procedures, allowing Taylor to plug and abandon wells by drilling intervention wells. J.A. 45–46. From April 2008 until March 2011, Taylor drilled intervention wells on nine of the twenty-five wells. J.A. 47–48.
D. The CERA and FRACE Workshops
In 2012, the Unified Command established two working groups to study the risks associated with drilling intervention wells and the conditions of the contaminated soil. J.A. 49, 51. After the working groups completed their assessment, the Unified Command created a workshop to conduct a Consensus Ecological Risk Assessment (“CERA“) and evaluate the potential ecological impacts of responses. J.A. 275–76. The CERA workshop released a report in July 2013 (the “CERA Report“), concluding that the risks associated with the planned procedures outweighed any ecological benefits of performing those tasks. J.A. 52, 263–324.
After the CERA workshop, the Unified Command conducted a Final Risk Assessment and Cost Estimate (“FRACE“) workshop. J.A. 54. The purpose of the FRACE workshop was to reach a conclusion on the “remaining risk posed by the MC-20 site and the estimated cost to mitigate that risk.” Id. The FRACE workshop considered expert studies from both Taylor and the government, id., and relied on an assumption that only a few gallons a day were leaking from the MC-20 site. At the end of the workshop, the government requested additional time to reach a conclusion but did not take further action. J.A. 55.
E. The “United States Views” Document
In March 2014, Taylor began taking steps to relieve itself of its decommissioning obligations and recover the remaining funds in the trust account. Relying on the FRACE workshop and its supporting documents, Taylor filed two departure requests with BSEE: (1) to grant departures from further intervention well decommissioning for the remaining sixteen wells; and (2) to grant a departure or alternative procedure authorizing Taylor to leave any contaminated soil at MC-20 in place.4 J.A. 56–57; J.A. 575.
Three days after BSEE denied Taylor‘s departure request, BSEE, BOEM, the Coast Guard, and the Department of Justice jointly issued a two-page document describing the United States’ views on the status of the ongoing oil leaks and Taylor‘s obligations at MC-20 (“the U.S. Views document“). J.A. 56, 565–66. The U.S. Views document notes that the ongoing oil discharge far exceeds the CERA and FRACE workshops’ assumption of an oil discharge comprising a few gallons a day. J.A. 565. The document makes clear that the United States does not agree with the CERA report‘s conclusions, J.A. 566, and that Taylor‘s decommissioning efforts up until then had been deficient. J.A. 566 (explaining that even if “proper well plugging and abandonment is not currently technologically feasible, there is still more that can be done to control and contain the oil that is discharging from the well site“). It acknowledges Taylor‘s request to recover the remaining $432 million in the trust account but concludes that reduction in funding is unwarranted because the cost of decommissioning the remaining wells likely exceeds the amount held in the Trust. Id. Because “[i]t would be contrary to the public interest and inappropriate under applicable law to provide Taylor Energy a release of liability,” the document determines that “Taylor Energy must continue to work to permanently stop the ongoing spill.” Id. at 565–66.5
F. Taylor‘s IBLA Appeal
On July 9, 2015, Taylor filed a notice of appeal of the BSEE denial with the Interior Board of Land Appeals (“IBLA“). J.A. 440–44. This too, was denied. J.A. 3334–53.
With respect to BSEE‘s refusal to relieve Taylor of its duty to plug and abandon the MC-20 wells, the IBLA explained that the agency was entitled to defer any action on decommissioning while it “consider[ed] additional research studies” for further improvements in decommissioning the remaining wells. J.A. 3348. “To preclude BSEE from awaiting changes in technology and a better understanding of the undersea environment improperly constrains its statutory and regulatory authority over offshore well decommissioning and unnecessarily limits its overriding responsibility to protect the environment from the adverse consequences of offshore drilling and production.” J.A. 3349. The IBLA
The IBLA also found that BSEE had a rational basis for denying Taylor‘s request to leave contaminated sediment in place. J.A. 3351. It explained that BSEE properly denied Taylor‘s request because, based on the evidence contained in the record, the agency remained convinced that the contaminated sediment posed a continuing threat to the undersea environment. J.A. 3349. “Given uncertainty regarding the source of the sheen, its continuing presence on the surface, and a potential need for Taylor to remove contaminated sediment in the future,” the IBLA concluded that BSEE‘s denial was supported by the administrative record. J.A. 3351. Notably, the IBLA characterized the trust account as a “lease-specific abandonment account,” created “to provide a secure source of funding for decommissioning undertaken by Taylor or by BSEE (in the event of default by Taylor).” J.A. 3337. Taylor did not appeal the IBLA decision.6
II. PROCEDURAL HISTORY
Rather than appeal the IBLA decision to federal district court, Taylor filed suit against the government in the Court of Federal Claims. Taylor‘s complaint asserts four claims involving Louisiana state law: (1) breach of the Trust Agreement for inserting an indefinite term (Count I); (2) request for dissolution of the trust account based on impossibility of performance (Count II); (3) request for reformation or recission based on mutual error (Count III); and (4) breach of the duty of good faith and fair dealing (Count IV). J.A. 60–70. In response, the United States filed a
The Claims Court denied the United States’
The court then determined that Taylor‘s remaining claims of impossibility and mutual mistake (Counts II and III) failed to state a claim because “Taylor‘s federal obligations under the Trust Agreement are not governed by state law.” Id. at 611. The court noted that the Trust Agreement “was established to fulfill Taylor‘s federal regulatory obligations,” and that these obligations do not terminate until the Department of Interior says they may. Id. The Claims Court explained that a finding of impossibility or mutual mistake would “second guess the IBLA” and independently relieve Taylor of its regulatory obligations. Id. at 611 (“[U]ntil Taylor is relieved of its federal decommissioning obligations by Interior, this court cannot find on its own that it is ‘impossible’ for Taylor to comply with its Trust Agreement obligations or that the Trust Agreement was entered based on a mutual mistake.“). It then rejected Taylor‘s argument that the court must “separate Taylor‘s regulatory obligations under the Trust Agreement from its regulatory obligations under the OCSLA,” explaining that such an argument “ignores the fact that the Trust Agreement was entered into to ensure compliance with Taylor‘s federal regulatory obligations.” Id. at 612. The Claims Court dismissed Taylor‘s complaint in its entirety under
Taylor appealed the Claims Court‘s determination. We have jurisdiction pursuant to
III. DISCUSSION
“This court reviews de novo whether the Court of Federal Claims possessed jurisdiction and whether the Court of Federal Claims properly dismissed for failure to state a claim upon which relief can be granted, as both are questions of law.” Turping v. United States, 913 F.3d 1060, 1064 (Fed. Cir. 2019) (quoting Wheeler v. United States, 11 F.3d 156, 158 (Fed. Cir. 1993)).
Taylor argues that the Claims Court erred in dismissing Counts II and III of its complaint because, under Louisiana state law, it plausibly stated a claim for dissolution based on impossibility and reformation based on mutual error. Appellant Br. 37–40. It contends that Counts I and IV properly alleged that the Trust Agreement includes an implicit term requiring performance within a “reasonable time,” pursuant to
We need not reach any of those arguments. In the context of OCS-based claims, state law does not apply if federal law addresses the relevant issue. As evident from the text of the Trust Agreement, the issues underlying Taylor‘s claims are governed by federal law.8
“The purpose of the Lands Act was to define a body of law applicable to the seabed, the subsoil, and the fixed structures ... on the outer Continental Shelf.” Rodrigue, 395 U.S. at 355. That this law was to be federal law “is made clear by the language of the Act.” Id. at 355–56. The OCSLA denies states any interest in or jurisdiction over the OCS, and it deems the adjacent state‘s laws to be federal law only in limited circumstances. Parker Drilling, 139 S. Ct. at 1886. Section 1333(a)(2)(A) provides:
To the extent that they are applicable and not inconsistent with this subchapter or with other Federal laws and regulations of the Secretary now in effect or hereafter adopted, the civil and criminal laws of each adjacent State, now in effect or hereafter adopted, amended, or repealed are declared to be the law of the United States for that portion of the subsoil and seabed of the outer Continental Shelf, and artificial islands and fixed structures erected thereon, which would be within the area of the State if its boundaries were extended seaward to the outer margin of the Continental Shelf . . . .
In Parker Drilling Management Services, Ltd. v. Newton, the Supreme Court clarified the meaning of the phrase, “to the extent that they are applicable and not inconsistent with other federal law,” under
Taylor asserts that Parker Drilling “does not alter the analysis of Taylor Energy‘s claims.” Appellant Br. 35 n.10. It alleges that Parker Drilling “adopted the rule of the Fifth Circuit, which has repeatedly held that state law, as surrogate federal law, governs breach-of-contract claims on the OCS.” Id. And it argues that, at most, we should remand the case to the Claims Court to consider “the impact of Parker Drilling” in the first instance. Id.
We disagree. Parker Drilling makes clear that its holding accords with
B.
Against this legal backdrop, it is clear that Louisiana state law applies only where there is a “gap” in federal law. This application of the law, however, dooms Taylor‘s appeal. All of the issues underlying Taylor‘s claims—e.g., the duration of Taylor‘s decommissioning obligations, the possibility of completing such tasks, and the reimbursement process—are addressed by OCSLA regulations.
For instance, Counts I and IV of Taylor‘s complaint are premised on the application of
Similarly, Counts II and III of Taylor‘s complaint rely on
Finally, to the extent Taylor‘s OCS-based claims rely on
Indeed, the Trust Agreement itself acknowledges the applicability of OCSLA regulations to the terms of the agreement. It incorporates the terms of the MC-20 leases, as well as the “applicable federal regulations related to such Leases.” J.A. 74. Schedule A also reaffirms the relevance of federal law, explaining that Taylor‘s “work plan and obligations under this Trust [A]greement will conform to MMS regulations contained in
Taylor presents two arguments to the contrary—both of which are premised on a misreading of precedent and inconsistent with the Court‘s holding in Parker Drilling.
First, Taylor alleges that state law applies because the Trust Agreement formed separate contractual obligations answerable only to state contract law. Appellant Br. 43. Notably, Taylor does not dispute that federal law addresses the issues underlying these “contractual” duties. Rather, citing to the D.C. Circuit‘s decisions in Noble Energy, Taylor maintains that when the government and a lessee enter into a contract, the government‘s breach can release the lessee from its contractual obligations, regardless of whether they are otherwise mandated by regulation. Appellant Br. 43; see Noble Energy, Inc. v. Salazar, 671 F.3d 1241 (D.C. Cir. 2012) (“Noble I“); Noble Energy, Inc. v. Jewell, 650 F. App‘x 9 (D.C. Cir. 2016) (“Noble II“). In other words, Taylor argues that the creation of the trust agreement somehow transformed its regulatory obligations into independent contractual obligations, which are no longer subject to federal law. Appellant Br. 43. And, because the Trust Agreement‘s choice of law provision refers to “the laws of the State of Louisiana,” Taylor reasons that all of its claims are subject to Louisiana state contract law. Appellant Br. 43.
Taylor‘s reliance on Noble Energy is unfounded. There, the lessee, Noble, acquired a lease to drill for oil on roughly six thousand acres of submerged lands off the coast of California. Noble I, 671 F.3d at 1242. It drilled one exploratory well, but temporarily plugged and abandoned the well for twenty-seven years. Id. During those years, Noble applied for and received several suspensions on its lease.10 Id. In 1999, two years into its last suspension‘s
Subsequently, MMS contacted Noble and ordered it to complete its decommissioning obligations. Id. at 1243–44. Noble refused. Id. at 1244. It argued that the government‘s breach discharged the lessees from any obligations recited in the contract, including its obligation to “conduct, arrange or pay for the plugging and abandonment of the 320 # 2 exploratory well.” Id. Noble then sued the Secretary of the Interior and MMS in federal district court, seeking injunctive and declaratory relief. Id. The district court determined, however, that the common law doctrine of discharge did not relieve Noble of its regulatory obligation to plug its well permanently because that obligation was not created by the lease, but by federal regulation.
After initially remanding the case to the agency for clarity on the scope of
Stripped of Taylor‘s mischaracterized depiction, the Noble Energy cases do little for the appellant. The underlying facts are different here (in Noble Energy, the government breached a lease agreement by subjecting the lessee to new “court-mandated” rules); a significant portion of the D.C. Circuit‘s analysis addresses the meaning and scope of
Taylor‘s second argument—that state contract law principles apply to contracts between the government and a private party, even where the contract incorporates regulatory duties—also mischaracterizes the case upon which it relies. Appellant Br. 41 (citing Mobil Oil Exploration & Producing Southeast v. United States, 530 U.S. 604, 607 (2000)).
In Mobil Oil,
Because the Secretary denied the lessee‘s plans for failure to comply with the new OBPA regulations, the Court concluded that the government violated the contracts. Id. at 618. It explained that the OBPA changed the pre-existing contract-incorporated requirements in several ways, that the changes were of a kind that the contracts did not foresee, and that the government communicated its intent to violate the contracts when it expressed its intent to follow OBPA. Id. at 619–621. After concluding that the companies did not receive significant post-repudiation performance, the Court ordered the government to refund certain sums to the companies. Id. at 624.
Mobil Oil has little relevance in the present appeal. In Mobil Oil, the government repudiated the lease agreement because its denials relied on newly created statutory authority, outside of those statutes and provisions incorporated in the original lease agreement. Id. at 615. In contrast, BSEE‘s refusal to grant Taylor‘s departure request is in compliance with the OCSLA, and the Trust Agreement specifically references the OCSLA regulations that govern the parties’ contractual duties. Mobil Oil says nothing about the application of state law to provisions governed by federal regulation at the time the parties entered into the original lease agreement. To the extent Taylor asserts that Mobil Oil stands for the proposition that state law is applicable in such circumstances, any such holding was certainly abrogated by Parker Drilling.
Because Taylor fails to state a claim to relief that is plausible on its face, its complaint must be dismissed. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
III. CONCLUSION
For these reasons, the Claims Court‘s order dismissing Taylor‘s complaint is affirmed.
AFFIRMED
COSTS
Costs to Appellee.