Baby Oil, Inc. v. United States of America

Filing 32

ORDER AND REASONS denying 15 Motion for Summary Judgment; granting 18 Motion for Summary Judgment. Signed by Chief Judge Sarah S. Vance on 4/5/13. (jjs, )

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
BABY OIL, INC.

CIVIL ACTION

VERSUS

NO: 12-1760

UNITED STATES OF AMERICA

SECTION: R(5)

ORDER AND REASONS
Plaintiff, Baby Oil, Inc. ("Baby Oil"), asks the Court to
set aside the decision of the National Pollution Funds Center
denying its claim for reimbursement. Defendant, the United States
of America, asks the Court to uphold the decision. Both parties
have moved for summary judgment.1 For the following reasons, the
Court upholds the decision, DENIES Baby Oil's motion, and GRANTS
the United States' motion.
I.

BACKGROUND
An unidentified vessel struck Baby Oil's wellhead #67/67D

("the well") in Lake Bully Camp, Lafourche Parish, Louisiana on
September 17, 2008.2 Almost 3,000 gallons of crude oil spilled
into the Grand Bayou Blue, which feeds into the Bayou Lafourche.3
Baby Oil paid cleanup costs and filed a claim for reimbursement
with the National Pollution Funds Center ("NPFC"). The NPFC
denied Baby Oil's claim for reimbursement under the Oil Pollution
1

R. Docs. 15, 18.

2

Admin. R. 000001, 000853.

3

Admin. R. 000853.

Act of 1990 ("OPA"), 33 U.S.C. §§ 2701-2761. Baby Oil filed this
suit for judicial review of the NPFC's decision and argues that
it should be set aside.4
A.

THE OIL SPILL
On September 17, 2008, at approximately 5:45 p.m., an

unidentified vessel struck Baby Oil's well.5 After the incident,
the well's guard structure was missing, and the wellhead was
submerged below the waterline.6 The Coast Guard reported that
"initial investigators observed oil and natural gas bubbling 10
feet into the air," and nearly 3,000 gallons of crude oil flowed
into the Grand Bayou Blue, which feeds into the Bayou Lafourche.7
The Louisiana Department of Natural Resources ("LA DNR")
inspected the well the day after the incident and found that the

4

Baby Oil filed an amended complaint on March 6, 2013,
including its insurer, Saint Paul Surplus Lines Insurance
Company, as an additional plaintiff in this case. R. Doc. 28.
5

Admin. R. 000853. The parties are unable to pinpoint
exactly when the allision occurred. Admin. R. 001008. A flyby of
the well at 2:00 p.m. did not reveal a spill, Admin. R. 000998,
and an expert report asserts that fishermen noticed the spill at
approximately 6:00 p.m. Id. Yet, Baby Oil initially reported that
the unidentified vessel struck the well at 7:30 p.m. Admin. R.
000001, 000003. Consistent with the evidence in the record, the
NPFC found that the vessel struck the well at approximately 5:45
p.m.
6

Admin. R. 000586.

7

Admin. R. 000853.
2

well was deficient, noting that the "well had no storm choke" and
"no nav-aid lights."8
Baby Oil reported the spill to the Coast Guard National
Response Center and began cleanup operations.9 Cleanup costs
totaled $2,444,067.90, which was paid by Baby Oil's insurer. Baby
Oil also incurred uninsured costs totaling $250,510.30. After
Baby Oil completed the cleanup, it plugged the well.10
B.

THE OIL POLLUTION ACT
The Oil Pollution Act of 1990 ("OPA") imposes strict

liability on "each responsible party for a vessel or a facility
from which oil is discharged" to pay for the "removal costs and
damages . . . that result from such incident." 33 U.S.C. §
2702(a). The OPA also authorizes the use of the Oil Spill
Liability Trust Fund, which is administered by the NPFC.
Under the OPA, a responsible party may make claims for
removal costs and damages against the Oil Spill Liability Trust
Fund only if it demonstrates that it is entitled to a defense to
liability under § 2703. Id. § 2708(a)(1). Section 2703 provides a
responsible party with a complete defense to liability if it
establishes, by a preponderance of the evidence, that the
discharge was caused "solely by" an "act or omission of a third

8

Admin. R. 000041.

9

Admin. R. 001044.

10

Admin. R. 000808.
3

party." Id. § 2703(a)(3). To qualify for this defense, the
responsible party must establish: (1) that it "exercised due care
with respect to the oil concerned, taking into consideration the
characteristics of the oil and in light of all relevant facts and
circumstances," and (2) that it "took precautions against
foreseeable acts or omissions of any such third party and the
foreseeable consequences of those acts or omissions." Id.
On April 1, 2009, Baby Oil filed a claim with the NPFC
asserting that the spill was caused solely by a third party. Baby
Oil's insurer, St. Paul Surplus Lines Insurance Co. ("St. Paul"),
later joined as a claimant. Baby Oil and St. Paul sought
reimbursement of $2,694,578.20 for the expense of cleaning up the
spill.11
C.

THE NPFC DECISION
The NPFC rejected Baby Oil and St. Paul's claim on May 13,

2010.12 The NPFC decided that Baby Oil was not entitled to the
third-party defense because it did not "exercise[] due care with
respect to the oil concerned in light of all relevant acts or
omissions or t[ake] precautions against foreseeable acts or
omissions of any such third party and the foreseeable
consequences of those acts or omissions."13 Specifically, the

11

Admin. R. 000738-39.

12

Admin. R. 000853.

13

Admin. R. 000857.
4

NPFC faulted Baby Oil for not installing "a subsurface valve or
storm choke," which is a device "designed to prevent the
discharge of oil in the event of surface accident, such as damage
to the wellhead."14 Failure to install the storm choke, the NPFC
reasoned, did not "evidence due care."15 Further, the NPFC noted
that Baby Oil did not equip the wellhead with a light to warn
vessels of the well's location.16 On September 16, 2010, Baby Oil
and St. Paul petitioned the NPFC to reconsider its decision
rejecting the claim.17 Baby Oil supplied additional information
in support of its petition for reconsideration, including an
expert report. On May 10, 2012, the NPFC again denied Baby Oil
and St. Paul's claim.18 Baby Oil filed the instant suit seeking
judicial review of the NPFC's decision denying its claim.
II.

STANDARD OF REVIEW
When reviewing agency action, "the district court sits as an

appellate tribunal." Univ. Med. Ctr. of S. Nev. v. Shalala, 173
F.3d 438, 440 n.3 (D.C. Cir. 1999) (citing Marshall Cnty. Health
Care Auth. v. Shalala, 988 F.2d 1221, 1225-26 (D.C. Cir. 1993)).
Under the Administrative Procedure Act, a district court may set

14

Admin. R. 000856.

15

Id.

16

Admin. R. 000856.

17

Admin. R. 000872-73.

18

Admin. R. 001005-10.
5

aside an agency's ruling "only if it is arbitrary, capricious, an
abuse of discretion, not in accordance with law, or unsupported
by substantial evidence on the record taken as a whole.” Tex.
Clinical Labs, Inc. v. Sebelius, 612 F.3d 771, 775 (5th Cir.
2010) (quoting Sun Towers, Inc. v. Schweiker (Sun Towers I), 694
F.2d 1036, 1038 (5th Cir. 1983)); 5 U.S.C. § 706(2). The Supreme
Court recently explained that under this "'narrow' standard of
review, we insist that an agency examine the relevant data and
articulate a satisfactory explanation for its action." FCC v. Fox
Television Stations, Inc., 556 U.S. 502, 513-14 (2009) (internal
quotation marks omitted)(citing Motor Vehicle Mfrs. Ass'n of
United States, Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S.
29, 43 (1983)).
The reviewing court's role "is not to weigh the evidence pro
and con but to determine whether the agency decision 'was based
on a consideration of the relevant factors and whether there was
a clear error of judgment.'" Delta Found. v. United States, 303
F.3d 551, 563 (5th Cir. 2002) (quoting Motor Vehicle Mfrs. Ass'n,
463 U.S. at 43). The court reviews an agency's factual findings
to determine only "whether they are supported by substantial
evidence." Buffalo Marine Servs. Inc. v. United States, 663 F.3d
750, 753 (5th Cir. 2011) (quoting Alwan v. Ashcroft, 388 F.3d
507, 509-10 (5th Cir. 2004)). The court reviews an agency's legal
conclusions de novo, "except for questions of statutory
6

interpretation, where the court owes 'substantial deference to an
agency's construction of a statute that it administers.'" Buffalo
Marine, 663 F.3d at 753-54 (quoting Alwan, 388 F.3d at 511).
The court "starts from 'a presumption that the agency's
decision is valid, and the plaintiff has the burden to overcome
that presumption by showing that the decision was erroneous.'"
Buffalo Marine, 663 F.3d at 753 (quoting Tex. Clinical Labs, 612
F.3d at 775). As explained below, Baby Oil has not met this
burden.
III. DISCUSSION
The question presented is whether it was arbitrary or
capricious for the NPFC to decide that Baby Oil failed to
exercise due care and failed to take precautions against the
foreseeable acts of a third party under § 2703(a)(3). The NPFC
based its decision on Baby Oil's failure to equip the well with a
storm choke. The NPFC also noted that the well did not have
navigation-aid lights to alert vessels to its location. The Court
finds that the NPFC's decision was not arbitrary or capricious. 5
U.S.C. § 706(2). The NPFC weighed the relevant factors, and its
decision is supported by the evidence in the record. Tex. Oil &
Gas Ass'n v. EPA, 161 F.3d 923, 933-34 (5th Cir. 1998).
A.

THE NPFC DID NOT ERR IN CONCLUDING THAT DUE CARE REQUIRED
BABY OIL TO EQUIP THE WELL WITH A STORM CHOKE

7

A storm choke, also known as a subsurface safety valve, is
designed to prevent the unauthorized discharge of oil. It is
undisputed that Baby Oil did not equip the well with a storm
choke.19 Baby Oil contends it was not required to install a storm
choke by any law or regulation and that its full compliance with
the law demonstrates that it exercised due care. There are two
problems with this argument. First, statewide regulations did
require Baby Oil to install a storm choke. Second, even if
regulations did not require Baby Oil to install a storm choke,
Baby Oil's full compliance with laws and regulations would not
conclusively establish due care. Accordingly, Baby Oil has not
established that the NPFC's decision must be reversed.
1.

Louisiana regulations required Baby Oil to install a
storm choke.

As the NPFC noted, Louisiana Statewide Order 29-B-a
"requires storm chokes on wells where the surface pressure on the
well is greater than 100 psi."20 See La. Admin. Code, tit. 43, §§
1101, 1103 (2012). Baby Oil does not dispute the NPFC's findings
that the well's surface pressure was likely above 100 psi.
Indeed, the NPFC's findings were based on three sources. First,
the LA DNR's November 2005 well record reflected that the well
had a surface pressure of 110 psi. Second, a June 2008 well

19

R. Doc. 21-1 at 2-3.

20

Admin. R. 001009.
8

report noted that the well's surface pressure was 375 psi. Third,
early reports following the allision stated that oil and gas
discharged from the well up to 10 feet in the air.21 The record
clearly supports the NPFC's findings that the well had the
requisite surface pressure to fall under the statewide order's
requirement.
Instead, Baby Oil originally argued that a storm choke is
not required for gas injection wells under Louisiana
Regulations.22 But, the statewide order does not except gas
injection wells from its requirement, and as the NPFC noted, Baby
Oil "does not refer to any authority for the proposition that
this type of well was not subject to the storm choke
requirement."23 Baby Oil now argues for the first time that the
regulation does not apply to the well because it is not "located
in [a] bod[y] of water being actively navigated," as is required
by the regulation. La. Admin. Code, tit. 43, § 1103(A)(2). Baby
Oil argues that because the well was located outside the
navigation channel, it was not located in an actively navigated
water body.24

21

Admin. R. 001009.

22

R. Doc. 15-1 at 18.

23

Admin. R. 001009.

24

R. Doc. 21 at 9.
9

This argument runs contrary to the words of the statute and
Baby Oil's previous representations. The regulation does not
require the well to be located in a navigation channel, and Baby
Oil does not argue that only navigation channels can be bodies of
water that are "actively navigated." Id. § 1103(A)(2). Nor does
Baby Oil demonstrate that vessels were restricted to the channel.
See, e.g., Am. Dredging Co. v. Calmar S.S. Co., 1954 AMC 1211
(E.D. Pa. 1954) ("I know of no rule of law which limits the
navigation of a vessel to a ship channel." (citing The Oliver, 22
F. 848 (E.D. Va. 1885))). The record demonstrates that the well
was located in an actively navigated body of water. Baby Oil's
own description of the well to the NPFC explained: "The wellhead
was located approximately 300ft north of the local navigational
channel. This channel was well traveled because it is the only
available passage for larger vessels in the area."25 Baby Oil's
statement of undisputed facts concedes that crude oil from its
well "was discharged into the navigable waters of the United
States of America."26 Further, Baby Oil equipped the well with a
well-guard structure, suggesting that Baby Oil was aware that the

25

Admin. R. 000004. It is unclear how far outside the
channel the well was located, and how well the channel was
marked. Admin. R. 001008. The record suggests that the well was
located anywhere from 100 to 300 feet outside the channel. Id.
26

R. Doc. 15-3 at 2; R. Doc. 21-1 at 2.
10

waters were "well traveled" and actively navigated.27 Finally,
Baby Oil's claim noted that the well was located in eight feet of
water.28 Accordingly, Baby Oil's argument that the well was not
located in an actively navigated body of water is unavailing.
Baby Oil also emphasizes that two months before the
accident, the LA DNR inspected the well and that the well passed
inspection.29 Baby Oil argues that had a storm choke been
required, the LA DNR would have noted a violation in its
inspection. It is unclear whether the LA DNR checked for a storm
choke, but the LA DNR's inspection the day after the accident
suggests that a storm choke was required. That inspection
identified the well as deficient and noted that the "well had no
storm choke."30 Accordingly, the NPFC had sufficient grounds to
conclude that Baby Oil did not fully comply with the statewide
regulation and did not exercise due care.
2.

Even if Baby Oil fully complied with regulations, the
NPFC properly concluded that due care required Baby Oil
to equip the well with a storm choke.

Even assuming that Baby Oil was not required by statute or
regulation to install a storm choke, the NPFC's decision that due

27

That the well was struck by a vessel also suggests that
the waters were actively navigated.
28

Admin. R. 000003.

29

Admin. R. 000038-39.

30

Admin. R. 000041.
11

care required Baby Oil to install a storm choke was still proper.
A statute or regulation can set the minimum requirements for due
care, and a party's statutory violation may establish negligence
per se. A party's full compliance with statutes and regulations,
however, does not automatically establish that it was acting with
due care. In short, evidence of statutory compliance does not
provide Baby Oil with a perfect shield. Instead, whether a party
has exercised due care "tak[es] into consideration the
characteristics of the oil" and "all relevant facts and
circumstances." 33 U.S.C. § 2703(a)(3)(A); see Tidewater Marine,
Inc. v. Sanco Intern., 113 F. Supp. 2d 987, 998 (E.D. La. 2000)
("A duty of care may be derived not only from statutory
standards, but also from the dictates of reasonableness and
prudence under the given circumstances of a case." (citing Coumou
v. United States, 107 F.3d 290, 295-96 (5th Cir. 1997), withdrawn
and superseded in part on reh'g by Coumou v. United States, 114
F.3d 64 (5th Cir. 1997)).
On this point, the NPFC noted that even if Baby Oil received
a waiver of the storm-choke requirement, it might still not
qualify for the third-party defense.31 This is because "due care"
is not defined by statute, but instead "tak[es] into
consideration the characteristics of the oil" and "all relevant
facts and circumstances." 33 U.S.C. § 2703(a)(3)(A).

31

Admin. R. 001009 n.15.
12

The NPFC properly reasoned that the relevant facts and
circumstances required that Baby Oil equip the well with a storm
choke in order to exercise due care. The well was located 300
feet north of a "well traveled" channel that was the "only
available passage for larger vessels in the area."32 The most
recent tests revealed that the well had a surface pressure of 375
psi. Combined, these circumstances reveal a foreseeable
possibility that a vessel could leave the channel and strike the
well. Accordingly, the NPFC was not arbitrary and capricious in
finding that under these circumstances, due care required Baby
Oil to equip the well with a storm choke to mitigate the
consequences of an allision.
Baby Oil improperly relies on Plantation Pipeline, Company
v. The Oil Spill Liability Trust Fund, 1998 U.S. Dist. LEXIS
23671 (N.D. Ga. 1998), for the proposition that it is arbitrary
and capricious to find that a responsible party did not exercise
due care "although [the party] complied with industry standards,
[but] had nonetheless failed to prevent the spill."33 Plantation
Pipeline does not stand for this proposition. As properly noted
by the NPFC, Plantation Pipeline held that the NPFC's denial of a
claim was arbitrary and capricious because it required a claimant
to "explain why, although it was following required maintenance

32

Admin. R. 000004.

33

R. Doc. 21 at 12.
13

and leak prevention practices, it failed to detect the damage
before the actual leakage began." Plantation Pipeline, 1998 US.
Dist. LEXIS 23671, at *23. The court explained that there was
"nothing in the record indicat[ing] a lack of due care," and
"[t]o require [the responsible party] to prove a negative, that
is, to require it to show why its compliance with industry
standards did not detect the leak, is to require too much." Id.
at *23-24.
Here, there is evidence in the record suggesting a breach of
care. Specifically, one day after the accident the LA DNR
inspected the well and marked it deficient for not having a storm
choke.34 Further, the NPFC did not require Baby Oil to prove a
negative as part of its burden to establish that it exercised due
care. For instance, the NPFC did not require Baby Oil to answer
why the storm guard did not prevent the spill in this case as
part of its burden to prove it exercised due care. Instead, the
NPFC followed section 2703's instructions and determined that
Baby Oil failed to take a precaution, installing a storm choke,
that was required by the facts and circumstances of this case.
The NPFC's decision was not arbitrary or capricious because
it examined the relevant data, articulated a satisfactory
explanation for its action, and provided a rational connection
between the facts found and the choice made. See Bean Dredging,

34

Admin. R. 000041.
14

LLC v. United States, 773 F. Supp. 2d 63, 73 (D.D.C.
2011)(quoting PPL Wallingford Energy LLC v. Fed. Energy
Regulatory Comm'n, 419 F. 3d 1194, 1198 (D.C. Cir. 2005); Intl'
Union, United Mine Workers of Am. v. Mine Safety

& Health

Admin., 626 F.3d 84, 90 (D.C. Cir. 2010)).
B.

THE NPFC DID NOT ERR BY CRITICIZING BABY OIL FOR NOT
EQUIPPING ITS WELL WITH LIGHTS
The NPFC also noted that Baby Oil failed to equip the well

with lights to warn vessels of the presence of the well.35
Although the parties argue over whether Baby Oil's failure to
equip the well with lights was a failure to exercise due care, a
close reading of both NPFC decisions reveals that the NPFC never
explicitly held that Baby Oil's failure to install lights was a
breach of due care. Instead, in both decisions the NPFC
identified Baby Oil's failure to install a storm choke as an
independent and dispositive failure to exercise due care: "If the
well had been equipped with a storm choke the storm choke should
have prevented the discharge of oil. Thus, Baby Oil cannot
succeed in its argument that the incident was solely caused by a
third party."36 Because the failure to install a storm choke was

35

Admin. R. 000856.

36

Admin. R. 001007; Admin. R. 000856 (NPFC's original
denial noting: "Failure to install a subsurface valve or storm
choke device that could shut in a well in the event of a surface
disaster when that well is located near a highly traveled
navigation channel and in, or adjacent to, a wildlife management
area does not evidence due care").
15

dispositive, it was unnecessary for the NPFC to decide whether
the failure to equip the well with lights was also a failure to
exercise due care. Accordingly, the NPFC's reconsideration
decision does not reach the issue.37 Nevertheless, to the extent
the NPFC did rely on Baby Oil's failure to equip the well with
lights as a basis for its denial, this too was proper.
The parties again dispute whether Baby Oil was required to
provide lighting by statute or regulation. The NPFC did not claim
that Baby Oil violated any statute or regulation by failing to
provide the lights, but the United States now argues that federal
regulations required the well to be equipped with lights. See
Serigne v. Cox Operating, L.L.C., No. 06-5861, 2008 WL 4003117,
at *3-4 (E.D. La. Aug. 26, 2008) (noting that "Courts have
routinely held that [33 C.F.R. §§ 66-67] create[s] a statutory
duty to install lights, reflective matter, and maintain private
aids to navigation on the owner"). Although Baby Oil does not
dispute that federal regulations required it to equip the well
with lights, the NPFC did not rely on these regulations in making
its determination. Instead, as discussed above, the existence of
a statutory violation is not a prerequisite for establishing a
breach of care. Under the circumstances of this case, namely,
that the well was located near a well-traveled channel, it was
not arbitrary or capricious for the NPFC to conclude that Baby

37

Admin. R. 001006-10.
16

Oil was required to take the preventative step of equipping its
well with lights.
Baby Oil argues that the accident occurred during the
daylight hours of September 17, 2008, and that the lights would
have done nothing to prevent the incident. This argument is
unpersuasive. The NPFC found that the allision occurred at
approximately 5:45 p.m,38 and this estimate is supported by the
timing of the accident reports. Baby Oil argues that, even so,
this was still daylight, making well lights superfluous.39 At
5:45 p.m., the skies could have been darkening, and lights could
have helped warn vessels of the well's location. Further, even in
broad daylight, the lights could still draw attention to the well
and alert vessels of the well's location. Accordingly, the NPFC's
discussion of Baby Oil's failure to install lights on the well
was proper.
C.

THE NPFC DOES NOT REQUIRE AN IMPOSSIBLE STANDARD OF CARE
Baby Oil's last argument is that the NPFC decision is

arbitrary and capricious because even if Baby Oil had taken the
precautions referenced in the Reconsideration Determination, the
Reconsideration Determination suggests that such actions would
not necessarily have prevented the accident. Baby Oil relies on
the NPFC's statement that "[i]f the well had been equipped with a

38

Admin. R. 000853.

39

See supra note 5.
17

storm choke the storm choke should have prevented the discharge
of oil."40
Baby Oil's argument does not make much sense. The OPA's
third-party defense exists because sometimes, even when the
responsible party exercises due care, third parties cause spills.
In these narrow circumstances, the OPA provides responsible
parties with a defense to liability. If "due care" meant "failsafe" there would be no need for a third-party defense because
there would be no class of responsible parties who exercised due
care and had an oil spill. Accordingly, that the NPFC stated that
a storm choke should have, instead of "would have," prevented the
spill has no bearing on its determination that a storm choke was
required due care.
Accordingly, the NPFC was not arbitrary or capricious when
it found that Baby Oil's failure to equip the well with a storm
choke was a failure of due care under these circumstances. Its
decision that Baby Oil is not entitled to a third-party defense
under § 2703(a)(3) is supported by the record and is upheld.

IV.

CONCLUSION
The Court concludes that the agency's decision in this case

is rationally based on the evidence in the record and was not in
any way arbitrary or capricious or otherwise in violation of the
40

Admin. R. 001009 (emphasis added).
18

Administrative Procedure Act. Baby Oil's motion for summary
judgment is DENIED. The United States' motion for summary
judgment is GRANTED. Plaintiffs' claims are dismissed.

5th
New Orleans, Louisiana, this __ day of April, 2013.

_________________________________
SARAH S. VANCE
UNITED STATES DISTRICT JUDGE

19