August 10, 2020

Second Circuit: Submerged Electrical Transmission Cable Is a "Facility" Under Oil Pollution Act

Holland & Knight Alert
Vincent J. Foley | James Hohenstein | F. Robert Denig | Clayton J. Vignocchi

Highlights

  • In a matter of first impression, the U.S. Court of Appeals for the Second Circuit has ruled that an oil-filled submerged electrical transmission cable is a "facility" under the Oil Pollution Act of 1990 (OPA).
  • In Power Authority of the State of New York v. M/V Ellen S. Bouchard, et. al., the court's decision turned on interpreting the OPA definition of "facility," and marked the first time this statutory term has been construed by an appellate court. The court held unanimously that the cable in question is an OPA "facility," and thus falls within the purview of the OPA liability scheme.
  • The Second Circuit has now provided clarity as to the scope of the meaning of an OPA facility to include submerged electric cables and reaffirmed the intended remedial scope of the OPA statute.

In a matter of first impression, the U.S. Court of Appeals for the Second Circuit has ruled that an oil-filled submerged electrical transmission cable is a "facility" under the Oil Pollution Act of 1990 (OPA). Power Authority of the State of New York v. M/V Ellen S. Bouchard, et. al., No. 19-1140-cv, 2020 WL 4355268 (2d Cir. July 30, 2020). The Second Circuit's decision turned on interpreting the OPA definition of "facility," and marked the first time this statutory term has been construed by an appellate court. The court held unanimously that the cable in question is an OPA "facility," and thus falls within the purview of the OPA liability scheme.

Background

In January 2014, a tug and barge unit dropped an anchor in a charted cable area in the Long Island Sound, allegedly striking one cable of a four-cable system owned and operated by the Power Authority of the State of New York (NYPA), the largest state-owned utility in the United States. As with many electrical transmission submarine cables, the cable contained dielectric fluid (assumed by the court to be an "oil" for OPA purposes) used for cooling, insulation and lubrication of the cable during normal operations. The anchor strike incident caused the cable to fault and rupture, resulting in dielectric fluid spilling into the water. With the involvement of the cognizant governmental authorities (the U.S. Coast Guard and the New York State Department of Environmental Conservation), NYPA immediately activated its spill response plan and engaged its oil spill response contractor. To prevent water from encroaching into the cable and causing further damage, the fluid pressure in the cable was maintained by shore-based pressurization stations, which kept positive pressure at the rupture point until the cable could be located and the cable ends capped while awaiting repair. Ultimately, several thousand gallons of dielectric fluid entered the water, and NYPA incurred more than $9.8 million in oil spill response and removal costs, as well as substantial costs arising from the repair of the cable.

Following the incident, the owner and operator of the tug and barge (vessel interests) filed a limitation proceeding pursuant to the 1851 Shipowner Limitation Act, seeking exoneration from or limitation of liability for the incident to the value of the tug and barge, which was substantially lower than NYPA's damages incurred in the oil spill response and cable repair work. As part of the Limitation Act proceeding, all claimants were enjoined from filing other actions for damages arising from the incident. NYPA filed its claim in the Limitation Act proceeding, albeit asserting that its oil spill response claim arose under OPA and the New York State Oil Spill law and was not subject to any limitation.

Liability Structure of the Oil Pollution Act

OPA establishes a comprehensive liability and compensation scheme for oil spills. Under OPA, "each responsible party for a vessel or facility from which oil is discharged . . . into or upon the navigable waters . . . is liable for the removal costs and damages . . . that result from such an incident." 33 U.S.C. § 2702(a). The "responsible party" is defined as the owner or operator of the vessel or facility that is the source of the discharge. 33 U.S.C. § 2701(32). OPA permits a responsible party to shift liability to third parties in instances where the spill is "caused solely by an act or omission of one or more third parties." In such cases the third party becomes the "responsible party" for the purpose of OPA, and is strictly liable for all of the cleanup and removal costs. Furthermore, OPA contains a savings clause that has been interpreted to repeal the Limitation Act for claims arising under OPA (including third-party liability claims). 33 U.S.C. 2718(a). The OPA savings provision also applies to preserve claims based on state law oil pollution statutes. In other words, vessel owners cannot rely on the Limitation Act to limit liability arising under OPA and applicable state statutes.

Accordingly, pursuant to a stipulation, NYPA filed a separate action against vessel interests asserting third-party liability claims under OPA (and the applicable New York state statute) for its oil spill damages. At the conclusion of discovery, the U.S. District Court for the Southern District of New York dismissed NYPA's OPA claim finding that the submarine cable was not a "facility" as defined by OPA, and thus spills emanating from the cable were not subject to OPA nor could the state law claim be asserted outside the Limitation Act proceeding. Power Auth. of N.Y. v. M/V Ellen S. Bouchard, 377 F. Supp. 3d 230 (S.D.N.Y. 2019).

OPA defines "facility" as:

[A]ny structure, group of structures, equipment, or device (other than a vessel) which is used for one or more of the following purposes: exploring for, drilling for, producing, storing, handling, transferring, processing, or transporting oil.

33 U.S.C. § 2701(9)

The District Court applied a restrictive reading of the statute narrowing the scope of the definition of "facility" to only structures or equipment that are "primarily" or "substantially" used for one of the enumerated purposes, i.e., holding that while the power transmission cable may have the capability to transfer, store or handle oil, the District Court determined that the cable was not "used" for those purposes and thus is not a "facility." The District Court further held that, because the OPA liability scheme did not apply, the OPA saving provisions likewise did not apply to preserve NYPA's state law claim for oil spill damages. As such, the District Court held that all of the oil spill response claims were subject to the Limitation Act and must be brought in the Limitation Act proceeding.

Second Circuit's Decision

The Second Circuit rejected the District Court's restrictive interpretation of the "facility" definition. Relying on the plain meaning of the word "transfer" the court observed that, while not the main purpose of the cable, the cable had the capacity to transfer dielectric fluid between the pressurization plants and holding tanks on either end of the cable to support the cable's normal use and function. The court determined that the crux of the question "is whether the utilization of this capability suffices for the cables to be considered 'used for' that 'purpose[]'." 2020 WL 4355268 at *5. The court held that it does, noting that "the definition's language requires nothing more than that the cables be employed to transfer the dielectric fluid." Id. The court further rejected vessel interests' argument that OPA is intended to apply only to facilities that are engaged in oil exploration, production and transportation. The court found no such restriction in the statutory purpose of OPA or the plain language of the "facility" definition. Accordingly, the Second Circuit found that NYPA can assert its oil spill damage claim under OPA, and that the claim is not subject to limitation under the Limitation Act.

Conclusion

The use of dielectric fluids and other oils in submerged electrical cables for insulation and cooling is common. Submarine cables are, by their nature, constantly exposed to the risk of maritime casualties such as anchor strike incidents. As demonstrated in this case, such casualties can cause substantial oil spill clean-up costs that often must initially be borne by the owner of the facility. The Second Circuit has now provided clarity as to the scope of the meaning of an OPA facility to include submerged electric cables and reaffirmed the intended remedial scope of the OPA statute.

For additional information or questions regarding the Second Circuit ruling, contact the authors.


Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.


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