In Plains Pipeline, L.P. v. Great Lakes Dredge & Dock Company, 46 F.Supp.3d 632 (E.D. La. 2014), plaintiff Phillips66 Pipeline, LLC, an owner of crude oil that was being transported via pipeline, brought a maritime tort action against the pipeline's owner to recover economic losses sustained as a result of the pipeline's shutdown for repairs. The defendants moved for summary judgment on the ground that the plaintiff crude oil owner lacked the proprietary interest in the pipeline required to recover for such economic losses. While the plaintiff argued that its service and operating agreements with the pipeline owner created a sufficient proprietary interest to overcome the Economic Loss Rule, the district court disagreed, noting that it was the owner that bore the ultimate obligation to repair, maintain, and insure the pipeline.
The pipeline at issue an underwater oil pipeline running from Bay Marchand, Louisiana, to Alliance, Louisiana was originally constructed in 1953 before being sold to BP Oil Pipeline Company. In May of 2007, plaintiffs Plains Pipeline L.P. ("Plains") and Phillips66 Pipeline, LLC ("Phillips"), were assigned the rights, duties, and obligations of BP and TPC Pipeline Company, as set forth in those parties' service and operating agreements. Specifically, BP assigned 100% of its rights as "Pipeline Owner" or "Operator" to Plains, while TPC Pipeline Company, assigned its rights as "Pipeline Lessee" and "Refinery Owner" to Phillips.
On March 17, 2012, the Dredge TEXAS, a cutter head and suction dredge owned by defendant Great Lakes Dredge & Dock Co., allegedly damaged the pipeline while lowering its cutter head onto the seafloor to fix the dredge's position. Plaintiff Phillips was the owner of the crude oil transported in the pipeline at the time of the incident, and lost a total of 204 barrels of crude oil. The pipeline was shut down for repairs, and as a result of the shutdown Phillips incurred expenses related to the alternative transportation of its crude oil during the repair period. During the litigation, Phillips submitted an expert report detailing the company's damages, which included inventory fees, freight charges, inspection charges, fuel charges, and lost product.
The defendants argued that, excluding the claim for damages for lost product, Phillips' other claims were purely for economic damages resulting from the damage to the pipeline. The defendant further argued that, because Phillips did not own the pipeline, it could not recover for such damages under the Economic Loss Rule enunciated in Robins Dry Dock and Repair Co. v. Flint, 275 U.S. 303 (1927). Phillips countered that while it did not own the pipeline, its rights as pipeline lessee and refinery owner created a proprietary interest in the pipeline sufficient to overcome the Robins Dry Dock economic loss bar.
The District Court noted that under Robins Dry Dock a plaintiff may not recover in an unintentional maritime tort suit for economic loss if that loss resulted from physical damage to property in which the plaintiff had no proprietary interest. The District Court further noted that in the Fifth Circuit, there exists three requirements for establishing a proprietary interest: (1) actual possession or control; (2) responsibility for repair; and (3) responsibility for maintenance.
The District Court found that, while Phillips may have had the sole right of use of the pipeline and agreed to reimburse Plains for certain pipeline repair and maintenance costs, it was Plains that had the actual responsibility and obligation to maintain, repair, and insure the pipeline. As such, the court noted that Phillips' interest in the pipeline was akin to that of a timecharterer, where the owner retains most of the incidents of ownership, such as providing the crew, maintenance, and insurance. Consequently, the court found that Phillips remained a pipeline lessee, and therefore any alleged negligence causing damage to the pipeline only interfered with Phillips' contractual right to the use of the pipeline.
In sum, the Economic Loss Rule is alive and well in the Fifth Circuit, and lessees of vessels and transportation facilities must fully understand their specific contractual rights and obligations. Particularly, parties should note that an exclusive right of use and a maintenance agreement may not be enough to overcome the economic loss bar.