MARITIME OILFIELD CONTRACTS RECONSIDERED.

Author:Engerrand, Kenneth G.
 
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  1. INTRODUCTION TO ADMIRALTY JURISDICTION AND CHOICE OF LAW II. INITIAL TREATMENT OF OILFIELD CONTRACTS III. RECONSIDERATION OF MARITIME CONTRACT JURISDICTION IV. REMAINING WORK I. INTRODUCTION TO ADMIRALTY JURISDICTION AND CHOICE OF LAW

    Article III of the United States Constitution extends the judicial power of the United States to "all Cases of admiralty and maritime Jurisdiction." (1) This provision in the Constitution marked a significant centralization of admiralty authority from the colonial era and from the period of the Articles of Confederation during which maritime claims were adjudicated in the admiralty courts of each colony or state. (2)

    Although Article III of the Constitution extended the judicial power of the United States to all admiralty and maritime cases, it did not create the lower federal courts or invest them with jurisdiction. (3) When the First Congress created the lower federal courts, it granted them "exclusive original cognizance of all civil causes of admiralty and maritime jurisdiction" in the Judiciary Act of 1789. (4) By this statute, "the entire admiralty power of the Constitution was lodged in the Federal Courts." (5)

    The extent of the investiture of admiralty and maritime authority in the federal courts based on the Constitution and Judiciary Act was addressed in the "learned and exhaustive opinion of Justice Story" (6) in De Lovio v. Boit. (7) Justice Story, sitting as a circuit judge, was presented with the question of whether a dispute over a maritime insurance contract fell within the admiralty jurisdiction of the federal courts, but he used the case as an opportunity to distance American courts from the English admiralty courts whose jurisdiction had been circumscribed by the expanding authority of the English common-law courts. (8) Reasoning that Article III of the Constitution "superadded" (9) the term "maritime" to the word "admiralty," Justice Story found "no solid reason for construing the terms of the constitution in a narrow and limited sense, or for ingrafting upon them the restrictions of English statutes...." (10) He concluded: "The advantages resulting to the commerce and navigation of the United States, from a uniformity of rules and decisions in all maritime questions, authorize us to believe that national policy, as well as judicial logic, require the clause of the constitution to be so construed, as to embrace all maritime contracts, torts and injuries...." (11) Thus, Justice Story's opinion established a broad reach for federal admiralty jurisdiction and principles of maritime law at the expense of common law courts and state law.

    Justice Story also planted the seeds in De Lovio v. Boit for the development of divergent principles to determine whether contracts and torts are maritime in nature and fall within the admiralty jurisdiction. After pronouncing that the admiralty and maritime jurisdiction "comprehends all maritime contracts, torts, and injuries," he added: "The latter branch is necessarily bounded by locality; the former extends over all contracts, (wheresoever they may be made or executed, or whatsoever may be the form of the stipulations,) which relate to the navigation, business or commerce of the sea." (12) Turning to "what are properly deemed 'maritime contracts,'" Justice Story stated: "All civilians and jurists agree, that in this appellation are included, among other things, charter parties, affreightments, marine hypothecations, contracts for maritime service in the building, repairing, supplying, and navigating ships; contracts between part owners of ships; contracts and quasi contracts respecting averages, contributions and jettisons; and, what is more material to our present purpose, policies of insurance." (13) Justice Story found "no more reason why the admiralty should have cognizance of bottomry instruments, as maritime contracts, than of policies of insurance. Both are executed on land, and both intrinsically respect maritime risks, injuries and losses." (14)

    It is ironic that only ten years after his expansive analysis in De Lovio v. Boit, declining to engraft English limitations onto American admiralty jurisdiction, Justice Story delivered his opinion in The Thomas Jefferson, (15) adopting the English Tidewater Doctrine that limited the scope of admiralty jurisdiction to waters at sea or within the ebb and flow of the tide.

    In denying admiralty jurisdiction over a seaman's suit for wages earned on a voyage up the Missouri River, Justice Story reasoned:

    In the great struggles between the Courts of common law and the Admiralty, the latter never attempted to assert any jurisdiction except over maritime contracts. In respect to contracts for the hire of seamen, the Admiralty never pretended to claim, nor could it rightfully exercise any jurisdiction, except in cases where the service was substantially performed, or to be performed, upon the sea, or upon waters within the ebb and flow of the tide. This is the prescribed limit which it was not at liberty to transcend.... In the present case, the voyage, not only in its commencement and termination, but in all its intermediate progress, was several hundreds of miles above the ebb and flow of the tide; and in no just sense can the wages be considered as earned in a maritime employment. (16) Within twenty-six years the Supreme Court scrapped the Tidewater Doctrine in maritime tort cases. As maritime commerce moved inland along with the westward expansion of the United States, the need for admiralty jurisdiction moved inland also. (17) When two ships collided on Lake Ontario, far beyond the reach of the coastal tide, the Supreme Court was presented in The Propeller Genesee Chief u. Fitzhugh' (18) with the question of whether to continue to limit the scope of admiralty jurisdiction with the Tidewater Doctrine. The Court did not lightly overrule The Thomas Jefferson, explaining: "For the decision was made in 1825, when the commerce on the rivers of the west and on the lakes was in its infancy, and of little importance, and but little regarded compared with that of the present day." (19) Chief Justice Taney concluded: "The lakes and the waters connecting them are undoubtedly public waters; and we think are within the grant of admiralty and maritime jurisdiction in the Constitution of the United States." (20)

    Unlike the situation with maritime torts where the choice-of-law analysis is tied in part to locality, (21) the application of admiralty law to contracts has evolved on a functional or conceptual basis. After the Supreme Court's application of the Tidewater Doctrine to the contract for seaman's wages in The Thomas Jefferson, the Court continued to cite the limitations of the Tidewater Doctrine in New Jersey Steam Navigation Co. v. Merchant's Bank of Boston, a case which involved a contract of affreightment on a steamer carrying specie between New York and Providence.

    On looking into the several cases in admiralty which have come before this court, and in which its jurisdiction was involved or came under its observation, it will be found that the inquiry has been, not into the jurisdiction of the court of admiralty in England, but into the nature and subject-matter of the contract,--whether it was a maritime contract, and the service a maritime service, to be performed upon the sea, or upon waters within the ebb and flow of the tide. And, again, whether the service was to be substantially performed upon the sea, or tidewaters, although it had commenced and had terminated beyond the reach of the tide, if it was, then jurisdiction has always been maintained. But if the substantial part of the service under the contract is to be performed beyond tide-waters, or if the contract relates exclusively to the interior navigation and trade of a state, jurisdiction is disclaimed. (22) In Insurance Co. u. Dunham, (23) the Supreme Court finally rejected a locality component, as part of the test for maritime contracts, (24) in the context of a policy of marine insurance. Justice Bradley stated:

    [I]n England, partly under strained constructions of parliamentary enactments and partly from assumptions of public policy, the common law courts succeeded in establishing the general rule that the jurisdiction of the admiralty was confined to the high seas and entirely excluded from transactions arising on waters within the body of a country, such as rivers, inlets, and arms of the sea as far out as the naked eye could discern objects from shore, as well as from transactions arising on the land, though relating to maritime affairs. (25) He added that for contracts the "locality was carried so far that, with the exception of the cases of seamen's wages and bottomry bonds, no contract was allowed to be prosecuted in the admiralty unless it was made upon the sea, and was to be executed upon the sea--" (26)

    Justice Bradley rejected application of the English limitations on maritime contracts that would have denied maritime jurisdiction over a policy of insurance that was issued on land. First, he reasoned that it had become settled in the United States that "the place or territory where the law maritime prevails, where torts must be committed, and where business must be transacted, in order to be maritime in their character ... extends not only to the main sea, but to all the navigable waters of the United States...." (27) Specifically, for contracts, Justice Bradley considered it to be "equally well settled that the English rule which concedes jurisdiction, with a few exceptions, only to contracts made upon the sea and to be executed thereon (making locality the test) is entirely inadmissible...." (28) Instead, he stated that "the true criterion is the nature and subject-matter of the contract, as whether it was a maritime contract, having reference to maritime service or maritime transactions." (29)

    The functional approach for determining whether a contract is maritime has not yielded any precise...

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