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October Term, 2011

January 11, 2012

Today the Supreme Court issued one decision, described below, of interest to the business community.

Outer Continental Shelf Lands Act—Scope of Worker Compensation Coverage

Pacific Operations Offshore, LLP v. Valladolid, No. 10-507 (previously discussed in the February 22, 2011 Docket Report).

The Outer Continental Shelf Lands Act (“OCSLA”) extends worker compensation benefits for “disability or death . . . resulting from any injury occurring as the result of operations conducted on the outer Continental Shelf.” 43 U.S.C. § 1333(b). Today, in Pacific Operations Offshore, LLP v. Valladolid, No. 10-507, the Supreme Court held that an injury is covered by the OCSLA when there is a “substantial nexus” between the injury and extractive operations on the Outer Continental Shelf (“OCS”).

Pacific Operations Offshore, LLP, a petitioner in the Supreme Court, operates two offshore oil drilling platforms located over the OCS more than three miles off the coast of California. Although the decedent, Juan Valladolid, spent the great majority of his working time aboard one of the drilling platforms, he was injured at Pacific Operations’ onshore oil-processing facility, when he was crushed by a forklift. His widow, a respondent in the Supreme Court, filed a claim for benefits under the Longshore and Harbor Workers’ Compensation Act, pursuant to the extension of that Act contained within the OCSLA.

An administrative law judge dismissed the claim, reasoning that the relevant provision of the OCSLA, Section 1333(b), did not cover Valladolid’s injury because the accident occurred on land and not over the OCS. The Labor Department’s Benefits Review Board affirmed, but the Ninth Circuit reversed. Rejecting the “situs of injury” test employed by the Fifth Circuit and the “but for” test used by the Third, the Ninth Circuit concluded that a claimant seeking benefits under the OCSLA must establish a “substantial nexus” between the injury and extractive operations on the OCS.

The Supreme Court affirmed by a 9-0 vote. Writing for the Court, Justice Thomas adopted the Ninth Circuit’s approach, rejecting both alternative tests as well as a third test proposed by the government.

The Court began with the situs-of-injury approach, according to which compensation under the statute is available only for injuries actually occurring over the OCS. Observing that the statute’s text requires only that “the extractive operations . . . be ‘conducted on the outer Continental Shelf’” and that “the employee’s injury . . . occur ‘as the result of’ those operations,” the Court concluded that “nothing in th[e] language [of the statute] suggests that the injury to the employee must occur on the OCS.” Slip op. 6.

The Court next rejected the government’s proposed test, according to which the OCSLA would cover a worker “injured off the OCS . . . only if his ‘duties contribute to operations’ on the OCS and if he performs ‘work on the [OCS] itself that is substantial in terms of both its duration and nature.’” Slip op. 12. Although concluding that such an approach “might well have merit as legislation,” the Court found itself constrained to reject it; the text of the statute “plainly suggests causation,” the Court said, and so it could not “ignore the language enacted by Congress.” Id. at 13.

Finally, the Court rejected the Third Circuit’s “but for” test, which, “[t]aken to its logical conclusion, . . . would extend workers’ compensation coverage to all employees of a business engaged in the extraction of natural resources from the OCS, no matter where those employees work or what they are doing when they are injured.” Slip op. 13. Finding that Section 1333(b) “should be interpreted in a manner that focuses on injuries that result from those ‘operations’ [actually taking place over the OCS],” the Court concluded that the statute’s “language hardly compels the Third Circuit’s expansive ‘but for’ interpretation.” Id. at 14.

The Court instead adopted the Ninth Circuit’s “substantial nexus” test, which it found to be “more faithful to the text” of Section 1333(b). Slip op. 14. The Court understood this test “to require the injured employee to establish a significant causal link between the injury that he suffered and his employer’s on-OCS operations conducted for the purpose of extracting natural resources from the OCS.” Id.

Justice Scalia, joined by Justice Alito, concurred in part and in the Court’s judgment. In his view, the “substantial nexus” test represents “novel legalese with no established meaning.” Slip op. 1 (concurring opinion). Rather than adopting an “indeterminate standard . . . of the Ninth Circuit’s imagining,” he would have held that “an employee may recover under § 1333(b) if his injury was proximately caused by operations on the Outer Continental Shelf.” Id.

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