5th Circuit Says OPA Third Party Defense Does Not Apply to Indirect Fueling Arrangements

The United States Court of Appeals for the Fifth Circuit recently had the opportunity to explore the scope of the Oil Pollution Act (OPA) third party defense  in Buffalo Marine Services, Inc. v. United States, 663 F.3d 750 (5th Cir. 2011).

While the OPA third party defense set forth at set forth at 33 U.S.C.S. § 2703(a)(3) was based on the CERCLA Third party defense of 42 U.S.C. 9607(b), the OPA provision has slightly different text.  The appeals court was asked to determine if this textual difference meant that the OPA third party defense was broader than its CERCLA analogue.

This case involved a collision among a barge owned by Buffalo Marine Services, Inc. (“Buffalo Marine”) and the tanker TORM MARY (TORM) during a fuel delivery.  As the barge prepared to dock with the TORM, the barge collided with the TORM, rupturing the tanker’s skin and adjacent fuel-oil tank. Approximately 27,000 gallons of heavy fuel oil spilled into theNechesRiver. Buffalo Marine, the TORM, and their insurers coordinated the clean-up that cost of $10.1 million.

Four parties had been involved in the fuel-purchase transaction. Bominflot, Inc. (“Bominflot”) was the seller of the fuel and LQM Petroleum Services, Inc. (“LQM”) was the broker who arranged the sale and also hired Buffalo Marine to deliver the fuel. Finally, the TORM was the end buyer of the fuel.

OPA has a liability limitation that is based on vessel size. The TORM would have been liable for the first $36 million of clean-up costs under the OPA limitation of liability while the Buffalo Marine barge liability limitation would have been $2MM. Thus, when the owners and insurers of the vessels involved in the spill jointly submitted a request for reimbursement of their cleanup expenses to the Coast Guard’s National Pollution Funds Center(“NPFC”), they identified the Buffalo Marine as the responsible party and sought to invoke the OPA third party defense to the TORM.

The NPFC denied the claim, concluding that the claimants had not established by a preponderance of evidence that there was no contractual relationship between Buffalo Marine and the TORM. In reaching its decision that the TORM was not entitled to the third party defense, the NPFC concluded that the phrase “contractual relationship” did not require direct privity of contract but extended to acts occurring in connection with a commercial fuel delivery even where a chain of agents or contracts stands between the party delivering the fuel and the party receiving the fuel. The NPFC determined the TORM and Buffalo Marine had at least an indirect contractual relationship and that the acts that allegedly caused the spill occurred in connection with that contractual relationship, thereby precluding the third-party defense.

The vessel owners filed a motion for reconsideration with NPFC, arguing that since the OPA third party defense did not refer to “indirect” contractual relationships as the CERCLA third party defense, the OPA defense encompassed indirect contractual relationships. However, the NPFC denied the claimants’ motion for reconsideration. Buffalo Marine and its insurers then sought review in the district court. After the parties filed cross-motions for summary judgment, the district court granted the government’s motion for summary judgment and denied the plaintiffs’ motion for summary judgment. Buffalo Marine and its insurers appealed.

On appeal, the Fifth Circuit noted that while the OPA third party defense did not specify if a third party must be in direct privity of contract with the responsible party to successfully assert the third party defense, the phrase “contractual relationship” was modified with the word “any”. The court said that if the word “any” was to be given its ordinary meaning, the phrase “any contractual relationship” must encompass all varieties of contractual relationships.

The legislative history, the court said, confirmed that Congress meant to encompass indirect contractual relationships with the phrase “any contractual relationship.” The court explained that the version of the OPA originally passed in the House simply referred to “a contractual relationship with a responsible party” while the Senate version had used the same language from the third party defense. At the conference, the court the phrase “any contractual relationship” was substituted for the phrase “a contractual relationship, existing directly or indirectly” and noted that the conference report said that the substitution reflected the adoption of the Senate version of the third-party defense provision, which emphasized the breadth of the “contractual relationship” limitation.

The court also found policy reasons for extending the “contractual relationship” phrase to indirect contractual arrangements. The court said that in determining the meaning of a statute, it must look not only to the particular statutory language but to the design of the statute as a whole as well as its object and policy. The court agreed with the district court that the interpretation advocated by appellants would allow contracting parties to avoid liability by the simple expedient of inserting an extra link or two in the chain of distribution. Allowing responsible parties to escape liability where the third party’s act was in connection with an indirect contractual relationship with the responsible party, the court reasoned, would risk allowing the exception (the third-party defense) to swallow the rule (strict liability for the vessel discharging the oil).

For the foregoing reasons, the court could find no reason to conclude that the phrase “any contractual relationship” excluded indirect contractual relationships. Given the common purposes and shared history of CERCLA and the OPA, the court found the different wording of the two parallel provisions insignificant. Accordingly, the court affirmed the NPFC interpretation of the OPA third-party defense

The court also affirmed the NPFC’s determination that there was an indirect relationship between the TORM and the barge.  The court noted the parties had acknowledged that the TORM contracted with Bominflot to deliver fuel bunkers and that Bominflot had arranged for the bunkers to be delivered by Buffalo Marine’s barge. The e-mails and other communications exchanged among the parties, the court said, supported the conclusion that Buffalo Marine and the TORM thus were linked by a promise of bunkering services in return for payment. While the contractual relationship between the TORM and Buffalo Marine may have been an indirect one, involving a chain of intermediaries, the NPFC reasonably concluded that the arrangement whereby Buffalo Marine’s barge delivered the bunkers to the TORM “squarely falls under the meaning of ‘any contractual relationship

The court also suggested the record included evidence of a more direct contractual relationship between the TORM and Buffalo Marine. The court noted that in the hours leading up to the collision, the master of Buffalo Marine’s tug and the master of the TORM communicated by radio to coordinate the planned delivery. In addition, as Buffalo Marine’s barge and tug were approaching the TORM, the TORM’s chief engineer was preparing the documents that the TORM and Buffalo Marine would have to sign so that the fuel-transfer operation could take place. One of these documents mandated by the OPA rules was a “Declaration of Inspection. Though the spill prevented the parties from ever signing the declaration of inspection, by law, they could not have completed the fuel transfer without signing the declaration. The mere fact that the bunkers were not ultimately delivered, the court said, did not affect the contractual nature of the relationship between the TORM and Buffalo Marine as the approach and collision occurred. Accordingly, the court said the NPFC reasonably concluded that the arrangements for delivery of fuel to the tanker fell within the meaning of “any contractual relationship.”

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