Federal Court Denies Remand on Outer Continental Shelf Lands Act Jurisdiction and Dismisses Fraud Counts of Complaint U.S. District Court for Eastern District Of Louisiana, November 17, 2016

The U.S. District Court for the Eastern District of Louisiana issued two opinions in the matter of Sheppard v. Liberty Mut. Ins. Co., et al. which denied the plaintiffs’ motion to remand and dismissed the plaintiffs’ fraud cause of action against the defendants.

Plaintiff Jesse Frank Sheppard originally filed in the Civil District Court for the Parish of Orleans. Sheppard alleged that he developed lung cancer and/or mesothelioma as a result of exposure to asbestos while working for Freeport Sulphur Company. The plaintiff sued several defendants involved in the manufacture, distribution, and sale of asbestos-containing products that he allegedly worked with as well as claims against insurance companies that allegedly provided coverage to defendants for asbestos-related claims and withheld information about the danger of asbestos.

Defendant Mosaic Global Holdings removed the case and the plaintiff moved to remand to state court. Defendant Mosaic and other opposed the motion to remand and assert that the Court may exercise jurisdiction under the Outer Continental Shelf Lands Act (OCSLA). Defendants argued that the court may exercise jurisdiction based on Sheppard’s allegation that a portion of his asbestos exposure occurred at Freeport’s Caminada Facility, which is located on the Outer Continental Shelf (OCS).

OCSLA contains an independent grant of federal jurisdiction. The pertinent provision, 43 U.S.C § 1349(b)(1), states: “[T]he district courts of the United States shall have jurisdiction of cases and controversies arising out of, or in connection with . . . any operation conducted on the outer Continental Shelf which involves exploration, development, or production of the minerals, of the subsoil and seabed of the outer Continental Shelf, or which involves rights to such minerals . . . .” The court explained that under Fifth Circuit precedent, a district court has jurisdiction under OCSLA if “(1) the facts underlying the complaint occurred on the proper situs; (2) the plaintiff’s employment furthered mineral development on the OCS; and (3) the plaintiff’s injury would not have occurred but for his employment.”

The plaintiff argued that (1) removal is inappropriate because at various times in his complaint he alleges that his injury was caused by exposure from 1967 to 1976, rather than through 1994; (2) new evidence suggests that Sheppard was not, in fact, exposed to asbestos at the Caminada Facility; and (3) even if Sheppard was exposed at Caminada, that exposure was not a “but-for” cause of his injury because the bulk of Sheppard’s alleged exposure occurred at other Freeport facilities not on the OCS.

The court rejected the plaintiff’s argument regarding timing because the complaint plainly alleged that Plaintiff was exposed while working at the facility. The court rejected the plaintiff’s second argument because it found that the new evidence did not suggest he was not exposed at the facility. The plaintiff’s “new evidence” was the plaintiff’s own deposition testimony, which the court found insufficient to overcome the clear allegations in his pleadings that a portion of his exposure occurred at Caminada. The court also rejected the plaintiff’s causation argument. The plaintiff argued that because he had decades-long daily exposure to asbestos that the roughly two years of exposure at Caminada cannot be a but for cause of his illness. The court rejected that position, explaining that “given that the but-for test would not excuse Freeport from liability for its OCS-based actions, it makes little sent to apply the same test to deny Freeport OCSLA jurisdiction” because “when a plaintiff is subjected to multiple tortious events and each is independently sufficient to cause plaintiff’s injury the but-for causation test will not work to excuse any single causative factor.”

The court issued a separate opinion granting defendant Mosaic Global Holdings Inc.’s motion to dismiss the plaintiff’s fraud claims under Rule 12(b)(6) of the Federal Rules of Civil Procedure. Federal Rule of Civil Procedure 9(b) imposes a heightened pleading requirement for fraud claims. Under Rule 9(b), a party alleging fraud or mistake “must state with particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). The Fifth Circuit “interprets Rule 9(b) strictly, requiring the plaintiff to specify the statements contended to be fraudulent, identify the speaker, state when and where the statements were made, and explain why the statements were fraudulent.” The court explained that state-law fraud claims, such as those alleged by the plaintiff in this case, are subject to the pleading requirements of Rule 9(b).

The fraud claims made by the plaintiff were of a concealment nature, and the court offered that while it is difficult to plead fraud by silence with particularity, it does not “excuse Plaintiffs alleging such fraud from the requirements of Rule 9(b). Therefore, to plead a claim for fraudulent concealment, the plaintiff must specifically allege: (1) the information that was withheld, (2) the general time period during which the fraudulent conduct occurred, (3) the relationship giving rise to the duty to speak, and (4) what the person or entity engaged in the fraudulent conduct gained by withholding the information.”

Critically, the court explained that “group pleading” is impermissible. In other words, claims for fraudulent concealment will therefore be dismissed if any one of the four required elements is pled generally as to all defendants, rather than specifically as to a single defendant. The court found that the plaintiff failed to plead what individual defendants gained by withholding information about the danger of asbestos and therefore the complaint failed to meet the fourth requirement for specifically alleging fraud under Rule 9(b). The court, recognizing that the plaintiff’s failure may reflect mere pleading defect rather than a more fundamental problem with the claims, dismissed the claims without prejudice and with leave to amend within 21 days.

Read the first decision here.

Read the second decision here.


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