EP Operating Ltd. Partnership v. Placid Oil Co.

United States Court of Appeals,

Fifth Circuit.

No. 93-3401.

EP OPERATING LIMITED PARTNERSHIP, Plaintiff-Appellant, Cross-
Appellee,

v.

PLACID OIL CO., et al., Defendants-Appellees,

v.

MANTA RAY GATHERING SYSTEMS, Defendant-Appellee, Appellant-Cross-
Appellant.

July 21, 1994.

Appeals from the United States District Court for the Eastern
District of Louisiana.

Before JOHNSON, BARKSDALE, and DeMOSS, Circuit Judges.

JOHNSON, Circuit Judge:

EP Operating Limited Partnership ("EP"), a co-owner of certain

property located on the Outer Continental Shelf ("OCS"), filed suit

against its co-owners to partition the property. Jurisdiction in

federal court was premised on the Outer Continental Shelf Lands Act

("OCSLA").1 A group of co-owners, led by Placid Oil Co.

("Placid"), joined issue and filed a motion to dismiss for lack of

subject matter jurisdiction pursuant to Fed.R.Civ.P. 12(b)(1). The

district court granted this motion and EP appeals.2 We REVERSE and

REMAND.

1
43 U.S.C. § 1331 et seq.
2
Also appealing is Manta Ray Gathering Systems, Inc. ("Manta
Ray"). This nominal defendant also seeks partition of the
property.

1
I. FACTS AND PROCEDURAL HISTORY

In May 1986, EP, Placid, certain predecessors in interest to

Manta Ray, and various other entities jointly agreed to acquire two

federally-created offshore pipeline rights-of-way.3 Pursuant to

their agreement, the co-owners constructed on these rights-of-way

an oil pipeline, a natural gas pipeline, an offshore platform and

related processing facilities (collectively, the "offshore

facilities").4

Between November 1988 and April 1990, these offshore

facilities were used to process and transport minerals. However,

in April of 1990, it was determined that the wells which were being

serviced by the offshore facilities were no longer producing in

paying quantities and thus further operation of the mineral leases

was no longer economically feasible under the existing market

conditions. Hence, the wells were shut down and the offshore

facilities have lain dormant since that time.5

The current dispute arose out of EP's attempt to recover some

3
The pipeline rights-of-way were granted by the United
States Department of the Interior, acting through the Minerals
Management Service ("MMS"), and were assigned O.C.S.G. Nos. 8390
and 8391. These leases will expire in April 1995, unless the
facilities are operating before then.
4
Accordingly, the property in issue herein consists of two
federally-created leases, approximately 52 miles of pipeline
attached to the seabed of the OCS, an offshore platform and
certain other production facilities. All of this property is
situated on the OCS and is held for the purpose of the production
and development of minerals from the OCS.
5
Although the offshore facilities are not currently being
used to transport minerals, ongoing maintenance of the facilities
is being conducted as required by MMS regulations. E.g., 30
C.F.R. §§ 250.130, et seq. and §§ 250.150, et seq.

2
value from these unused and depreciating assets on the OCS.

According to EP, these attempts have been hampered by the fact that

there are nine co-owners and that the property is encumbered by

numerous liens. This unwieldy situation, EP alleges, has made it

difficult to conduct negotiations to connect the offshore

facilities to producing leases or other pipelines or to sell or

salvage the equipment. Thus, unable to reach a voluntary agreement

as to the disposition of these offshore facilities, EP brought suit

against its co-owners6 and against several record lienholders7

seeking a partition by licitation. This is the first step, EP

maintains, in facilitating the reuse of these offshore facilities.

One of the co-owners named as a defendant, Manta Ray, answered

EP's suit and filed counter-claims and cross-claims seeking

substantially the same relief as that sought by EP. The other

co-owners, however, contest the instant partition action. Leading

the charge for the defense is Placid Oil Co., the operator of the

offshore facilities under the parties' joint agreement.

Subject matter jurisdiction for this action was premised on

the OCSLA. In particular, EP alleged that jurisdiction was proper

6
The co-owners are HI Production Company, Inc., Hunt
Petroleum Corporation, F.C. Vickers, in his capacity as trustee
for the Nelson Bunker Hunt Trust Estate, J.R. Holland, Jr., in
his capacity as trustee for the Lamar Hunt Trust Estate, Manta
Ray Gathering Systems, OPUBCO Resources, Inc., Petro-Hunt
Corporation and Placid Oil Company.
7
The ownership interests of several of the co-owners are
burdened by liens. The holders of these liens made defendants
herein are Cooper Industries, Inc., Cameron Offshore Engineering,
Inc., ABB Vetco Gray, Inc., HI Production Company, Inc., OPUBCO
Resources, Inc., Hunt Petroleum Corporation, Drill-Quip, Inc.,
David Matthew Wright and Southern Associates, Inc.

3
pursuant to section 1349 of the OCSLA which explicitly grants the

district courts jurisdiction over cases or controversies arising

out of or in connection with operations on the OCS. Alternatively,

EP argued that because section 1333 of the OCSLA provided the

substantive law for the dispute, federal question jurisdiction was

proper pursuant to 28 U.S.C. § 1331.

The appellees, though, filed a motion to dismiss for lack of

subject matter jurisdiction pursuant to Fed.R.Civ.P. 12(b)(1).

They contended that jurisdiction was not proper under section 1349

because the current action would not affect any "operation" on the

OCS and that section 1333 was never intended to provide subject

matter jurisdiction to the district courts. The district court

agreed and granted the motion to dismiss. EP and Manta Ray now

appeal.8

II. STANDARD OF REVIEW

This Court reviews a dismissal under Fed.R.Civ.P. 12(b)(1) de

novo using the same standards employed by the district court.

Benton v. United States, 960 F.2d 19, 21 (5th Cir.1992).

Therefore, taking all of EP's and Manta Ray's factual allegations

as true for purposes of this appeal, we must independently

determine whether the district court properly dismissed the claim

for lack of subject matter jurisdiction. Id.

III. JURISDICTION PURSUANT TO 43 U.S.C. § 1349(b)(1)

The OCSLA was passed in 1953 to establish federal ownership

8
The United States has also filed an amicus curiae brief
urging reversal of the district court's judgment.

4
and control over the mineral wealth of the OCS and to provide for

the development of those natural resources. Gulf Offshore Co. v.

Mobil Oil Corp., 453 U.S. 473, 480 n. 7, 101 S.Ct. 2870, 2876 n. 7,

69 L.Ed.2d 784 (1981). The OCSLA thus vests the federal government

with a proprietary interest in the OCS and establishes a regulatory

scheme governing leasing and operations there. Laredo Offshore

Constructors, Inc. v. Hunt Oil Co., 754 F.2d 1223, 1227 (5th

Cir.1985). Under the OCSLA, the law to be applied to the OCS is

exclusively federal, albeit the law of the adjacent state is

adopted as surrogate federal law to the extent that such law is

applicable and not inconsistent with federal law. Rodrigue v.

Aetna Casualty and Surety Company, 395 U.S. 352, 357, 89 S.Ct.

1835, 1838, 23 L.Ed.2d 360 (1969); 43 U.S.C. § 1333(a)(2)(A).

Moreover, original jurisdiction in the district courts is provided

for in the OCSLA over all cases arising out of operations on the

OCS for the development of the natural resources. Specifically,

the pertinent section 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....

43 U.S.C. § 1349(b)(1).

Despite this broadly worded grant of original jurisdiction,

the district court herein found that it lacked jurisdiction because

the dispute did not involve an "operation" on the OCS. In

explaining his reasoning, the district judge stated that

5
 [t]his is a dispute over the ownership and division of
property. It does not involve "operations" on the OCS. All
exploration, development or production has long since ceased
on the property. Plaintiff initiated this action solely for
the purpose of selling the property and dividing the proceeds
among the owners. There is no relationship to OCS operations,
and resolution of this controversy will not alter the progress
of production activities on the OCS.

(citations and footnotes omitted). There are two possible bases

for this holding. First, the district court may have determined

that there was no operation in this particular case as production

from this facility had ceased and the offshore facilities had lain

dormant for the last three years. Reasoning thus, the district

court could have concluded that no decision it made would affect

any ongoing operations on the OCS. Alternatively, the district

court may have concluded that there was no jurisdiction because of

the nature of the cause of action. Under that rationale, there

would never be jurisdiction for any partition suit, whether or not

the subject property on the OCS was producing minerals, because

such a suit merely determines property rights and does not affect

"operations" on the OCS.9 For the reasons stated below, we reject

both of these rationales.

First, we address the implication from the district court's

opinion that, since the offshore facilities are not currently

transporting minerals, there is no "operation" on the OCS. The

term "operation" is not defined in the OCSLA. However, this Court

has explored the meaning of that term in Amoco Production Co. v.

9
Although it is not clear from the appellee's brief, this
latter argument was the one advanced by defense counsel at oral
argument.

6
Sea Robin Pipeline Co., 844 F.2d 1202 (5th Cir.1988). In that

case, this Court found that the term "operation" contemplated the

doing of some physical act on the OCS. Id. at 1207. Further, this

Court found that it also contemplated the cessation of physical

acts undertaken upon the OCS. Id.

In the instant case, there have been substantial acts

undertaken on the OCS. Approximately fifty-two miles of pipe have

been laid on the OCS floor and an offshore platform and other

facilities have been erected. Further, acts on the OCS continued

after this as, for a time, these facilities were used to transport

minerals. The facilities presently lay dormant and the only

current activity is ongoing maintenance. However, there

undoubtedly will be acts taken on the OCS in the future. In

particular, it is very likely that these facilities will be reused

in some way to transport minerals again.10 Alternatively, even if

the facilities are never put back into operation, federal

regulations mandate that the offshore facilities will eventually

have to be cleared off the OCS.11

10
In fact, Manta Ray has served notice on the co-owners of
its intent to begin transporting minerals through the pipeline.
11
One concern of the OCSLA is that the resources of the OCS
be developed in an environmentally safe manner. Laredo, 754 F.2d
at 1227. Additionally, the government seeks to ensure that
structures erected on the OCS do not interfere with navigation.
Accordingly, federal regulations require that when a lease
expires or is abandoned, the equipment must be properly cleared
from the OCS. 30 C.F.R. § 250.112(i). Also, Article 5 of the
Convention on the Continental Shelf, 15 U.S.T. 471, TIAS 5578,
states, in pertinent part:

1. The exploration of the continental shelf and the
exploitation of its natural resources must not result

7
 It is incontrovertible that, at least while the offshore

facilities were being utilized to transport minerals, there was an

"operation" involving the exploration, development or production of

minerals such that there would be jurisdiction in the district

court pursuant to section 1349 for cases arising out of, or in

connection with, that operation. However, the district court

opinion seems to imply that that jurisdiction lapsed when activity

on the offshore facilities for the production of the minerals

stopped. Additionally, it would appear under this rationale that

our jurisdiction would begin again should these offshore facilities

be put back into use.

This reasoning is flawed. Production from oil and gas

facilities can be interrupted and there can be a hiatus in activity

for any number of reasons. Such temporary lulls in activity should

not control jurisdiction in federal court. These offshore

facilities were erected on the OCS, they were used to transport

minerals in the past, they may be used to transport minerals in the

future, and they will eventually have to be removed pursuant to

federal regulations. We find that there is an "operation" on the

OCS which can be the basis of jurisdiction in the district court

during this entire cycle as opposed to jurisdiction turning on and

off according to whether there is current activity on the

in any unjustifiable interference with navigation,
fishing or the conservation of the living resources of
the sea....

5. ... Any installations which are abandoned or disused
must be entirely removed.

8
facilities erected on the OCS.

We find this broad view of the term "operation" amply

supported by the statute. That term does not stand alone, but

rather it is used in conjunction with the terms "exploration,"

"development," and "production." Sea Robin, 844 F.2d at 1207.

Those terms are defined broadly12 in the statutes to encompass the

full range of oil and gas activity from locating mineral resources

through the construction, operation, servicing and maintenance of

facilities to produce those resources. We find that the term

"operation" should be read equally as broadly.

Further, the view that "operations" do not cease when

12
43 U.S.C. § 1331 provides in pertinent part:

When used in this subchapter.... (k) The term
"exploration" means the process of searching for
minerals, including (1) geophysical surveys where
magnetic, gravity, seismic, or other systems are used
to detect or imply the presence of such minerals, and
(2) any drilling, whether on or off known geological
structures, including the drilling of a well in which a
discovery of oil or natural gas in paying quantities is
made and the drilling of any additional delineation
well after such discovery which is needed to delineate
any reservoir and to enable the lessee to determine
whether to proceed with development and production;

(l) The term "development" means those activities which
take place following discovery of minerals in paying
quantities, including geophysical activity, drilling,
platform construction, and operation of all onshore
support facilities, and which are for the purpose of
ultimately producing the minerals discovered;

(m) The term "production" means those activities which
take place after the successful completion of any means
for the removal of minerals including such removal,
field operations, transfer of mineral to shore,
operation monitoring, maintenance and work-over
drilling.

9
production is halted finds support in then-district Judge Rubin's

opinion in Fluor Ocean Services, Inc. v. Rucker Co., 341 F.Supp.

757 (E.D.La.1972). In Fluor, an offshore drilling platform sank as

a result of damage from Hurricane Camille and the issue was whether

there was jurisdiction under section 1333(b)13 for a contract to

raise the platform. Obviously, operations for the production of

minerals from this platform ceased when the platform sank.

However, even though there was no current activity for the

production of minerals on the OCS, Judge Rubin still found that

there was jurisdiction. In so doing, he noted that some of this

equipment would be used again and, further, that federal

regulations required that the lessee remove the equipment from the

OCS. Id. at 758-59. Then, he concluded that

[i]t is clear that the court had jurisdiction over the
structure when it was being used for oil and gas exploration
on the outer Continental Shelf. To hold that jurisdiction was
lost when the structure sank would require a narrow reading of
the jurisdictional grant of 1333(b). However, a broad, not a
narrow, reading of this grant is supported by the clear
exertion of federal sovereignty ...

Id. at 759-60.

Accordingly, even though there is no current production from

the offshore facilities involved herein, we find that there is an

"operation" on the OCS in this case. The question that remains,

however, is whether the instant partition suit "arises out of, or

in connection with" that operation involving exploration,

development or production, or which involves rights to such

minerals. 43 U.S.C. § 1349(b)(1).

13
This section is now § 1349.

10
 This question implicates the second possible rationale for the

district court's ruling, and the contention made by counsel for the

appellees at oral arguments, which is that, because of the nature

of a partition suit, it is simply does not affect any "operation"

on the OCS. This is because a partition suit merely determines

property rights and does not involve actions on the OCS.

This argument requires a narrow reading of the jurisdictional

grant of section 1349, though, and a myopic focus on the term

"operation." We, however, stand once again alongside Judge Rubin

and conclude that "a broad, not a narrow, reading of this grant is

supported by the clear exertion of federal sovereignty ..." Fluor,

341 F.Supp. at 760; see also Recar v. CNG Producing Co., 853 F.2d

367, 369 (5th Cir.1988). Moreover, we note that the statute

provides that there is jurisdiction for cases or controversies

"arising out of, or in connection with " any "operation " conducted

on the OCS for the development of the mineral resources. 43 U.S.C.

§ 1349(b)(1). As we have already determined that there is an

"operation" on the OCS for the development of the natural resources

in this case, we find that our inquiry should now focus on the

phrase "arising out of, or in connection with."

This phrase is undeniably broad in scope. While the instant

partition action is merely an action to determine property rights,

the subject property is millions of dollars worth of offshore

equipment attached to the seabed of the OCS. These offshore

facilities exist solely to conduct operations on the OCS for the

production of mineral wealth. In light of this, we conclude that

11
a suit to determine ownership of these offshore facilities is

sufficiently connected with the operation of those offshore

facilities to come within the broad phrase "arises out of, or in

connection with."

Further, this broad reading of the jurisdictional grant of

section 1349 is supported by the expansive substantive reach of the

OCSLA. "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." Rodrigue, 395 U.S. at 355, 89

S.Ct. at 1837. To that end, Congress established federal control

over the OCS by extending the political jurisdiction of the United

States to the subsoil and seabed of the OCS and to "all artificial

islands, and all installations and other devices permanently or

temporarily attached to the seabed, which may be erected thereon

for the purpose of exploring for, developing, or producing

resources therefrom...." 43 U.S.C. § 1333(a)(1). Then, Congress

determined that the law applicable would be exclusively federal law

with the law of the adjacent state being adopted as surrogate

federal law to the extent that such law was applicable and not

inconsistent with federal law. Rodrigue, 395 U.S. at 357-58, 89

S.Ct. at 1838.

This body of substantive law identified in section 1333 was

intended "to govern the full range of potential legal problems that

might arise in connection with operations on the Outer Continental

Shelf ..." Laredo, 754 F.2d at 1228. Thus, the OCSLA casts a

broad substantive net in section 1333. Further, we find that the

12
most consistent reading of the statute instructs that the

jurisdictional grant of section 1349 should be read co-extensively

with the substantive reach of section 1333.14 Laredo, 754 F.2d at

1228 (describing the substantive body of law under the OCSLA and

the district court's original jurisdiction as "correlative").

Accordingly, consistent with the breadth of the substantive reach

of the OCSLA, we find that Congress intended for the "judicial

power of the United States to be extended to the entire range of

legal disputes that it knew would arise relating to resource

development on the Outer Continental Shelf." Id.

Instructive as to what types of cases fall within this broad

range of legal disputes is the Sea Robin case. In Sea Robin, the

issue was whether section 1349 provided jurisdiction over a suit

involving take-or-pay obligations in a contract for the purchase of

natural gas. 844 F.2d at 1203. In resolving that issue, the Sea

Robin Court noted that a primary purpose of the OCSLA was "the

efficient exploitation of the minerals of the OCS, owned

exclusively by the United States ..." Id. at 1210. Hence, the

Court reasoned that any dispute that alters the progress of

production activities on the OCS and thus threatens to impair the

total recovery of the federally-owned minerals was intended by

Congress to come within the jurisdictional grant of section 1349.

Id. As the Court concluded that exercise of the take-or-pay rights

14
After establishing that the law applicable to the subsoil
and seabed of the OCS and to structures erected thereon is
federal law, § 1333(a)(2)(A) then provides that all "such
applicable laws shall be administered and enforced by the
appropriate officers and courts of the United States."

13
in the dispute before it would threaten the total recovery of

federally-owned minerals from the OCS, the Court found jurisdiction

under section 1349.15 Id.

For the same reason, this Court found jurisdiction in United

Offshore Co. v. Southern Deepwater Pipeline Co., 899 F.2d 405 (5th

Cir.1990). In that case, two partners battled for control of a gas

pipeline. Although we found that the case was "one step removed"

from actual operation on the OCS, we still found jurisdiction

because resolution of the suit would affect the efficient

exploitation of resources from the Gulf and thus threaten the total

recovery of federally-owned minerals. Id. at 407.

The instant suit is a partition action to determine ownership

rights. The appellants have alleged, and, for the purposes of this

15
Appellees maintain that the only reason that the Sea Robin
Court found jurisdiction was because it found that the
take-or-pay dispute before it could "alter[ ] the progress of
production activities" and that it would have an "immediate
bearing on the production of the particular well ..." Sea Robin,
844 F.2d at 1210. From this, the appellees argue that there is a
temporal component to a finding of jurisdiction under the OCSLA
requiring that any affect on OCS operations must be immediate.

We find, however, that while the Sea Robin Court did
note that resolution of the dispute before it would have an
immediate effect, the reasoning supporting its holding was
broader. That reasoning was that the federal government was
concerned with the efficient exploitation of the mineral
wealth of the OCS. Id.

The government's interest in the minerals of the OCS is
proprietary. Laredo, 754 F.2d at 1227. It leases out the
minerals and receives a royalty on the amount produced.
Thus, the government is concerned with the total recovery of
the federally-owned minerals from the reservoirs underlying
the OCS. This interest is implicated whether a given
controversy threatens that total recovery either immediately
or in the long-term.

14
appeal, we must accept as true, that resolution of these ownership

rights will facilitate the reuse, sale or salvage of these offshore

facilities. Any of these actions, we conclude, would affect the

efficient exploitation of resources from the OCS and/or threaten

the total recovery of federally-owned resources. Accordingly, we

hold that the instant partition suit is a controversy "arising out

of, or in connection with (A) any operation ... which involves

exploration, development, or production of the minerals [of the

OCS] or which involves rights to such minerals." 43 U.S.C. §

1349(b)(1).

IV. CONCLUSION

For the reasons stated above, we hold that the instant

controversy is within the jurisdictional grant of authority in

section 1349.16 Therefore, the district court's dismissal for lack

of subject matter jurisdiction is hereby REVERSED and this case is

REMANDED to the district court for further proceedings.

16
As we decide this case under § 1349, we do not address
appellants' argument that 28 U.S.C. § 1331 provides an
alternative basis for jurisdiction.

15