United States: Eighth Circuit Holds Nonoperating Working Interest Owner And Engineering Contractor Not Liable For Negligence Of On-Site ‘Company Hand'

Last Updated: October 26 2016
Article by Bradley K. Jones

On Aug. 5, 2016, the United States Court of Appeals for the Eighth Circuit affirmed summary judgment in favor of a nonoperating working interest owner, Oasis, and its engineering subcontractor, RPM Consulting, holding that neither owed a duty of care to an employee of a drilling rig operator. North Dakota, like Texas and other states, follows Section 414 of the Restatement of Torts for determining liability for acts of independent contractors.

Oasis is an oil and gas exploration company that contracts with other entities to manage the day-to-day operations at its wells. It does not conduct drilling operations at its well sites; instead, it has a Master Service Contract with RPM Consulting to provide engineering support and subcontractors to oversee the drilling process and coordinate services needed to keep the sites operating efficiently.

In early 2011, Oasis obtained the rights to drill for oil at the Ross 5603 well in Williams County, North Dakota. Oasis engaged Nabors Drilling to drill the well and provide the rig and labor. RPM Consulting assigned Michael Bader as company hand to the rig. Bader, through the separate entity of Mike Bader Consulting LLC, had entered into a subcontractor agreement with RPM Consulting. The role of a company hand in this instance was to ensure that the drilling progressed safely, efficiently and according to plan. The company hand did not operate equipment or perform hands-on work but rather supervised drilling and contracts with third-party vendors for needed services. The company hand lived at the site, served as the Oasis representative at the well and emailed progress reports to Oasis and RPM Consulting each morning.

Joseph Kronberg worked for Nabors Drilling on Nabors Rig 177 and was electrocuted by a punctured and submerged electrical cord while exiting the Ross well's "change shack." Mr. Kronberg's widow brought wrongful death and survival actions against Oasis and RPM Consulting, among others, alleging defendants' negligence caused her husband's death. The district court granted summary judgment for Oasis and RPM Consulting, ruling that neither company owed Mr. Kronberg a duty of care under North Dakota law. The United States Court of Appeals for the Eighth Circuit affirmed.

Mrs. Kronberg argued that Bader, the company hand, was an employee of Oasis and RPM Consulting, and that the companies were vicariously liable to persons injured because of Bader's alleged negligence. As evidence, Mrs. Kronberg showed: (1) Bader was Oasis's lone representative at the well, and he was required to complete an accident report about Mr. Kronberg's death on an Oasis company form; (2) the RPM Consulting-Bader contract required Bader to complete his work personally; (3) RPM Consulting assigned Bader to a specific rig; (4) RPM Consulting provided Bader with documents; (5) Bader emailed RPM Consulting employees often; (6) Bader sent daily progress reports to RPM Consulting employees; (7) RPM Consulting furnished equipment, such as a computer, along with an email address and computer files for Bader's use; and (8) Bader was paid based on the number of days he worked and on a regular basis. The court held these circumstances were insufficient to support a finding that the companies directed the means and manner of Bader's work. The record established Bader was an independent contractor and not an employee of Oasis or RPM Consulting.

Alternatively, Mrs. Kronberg argued that the companies may be liable under the doctrine of retained control found in the Restatement (Second) of Torts § 414 (1965), which imposes liability on a company that treats an independent contractor like an employee by controlling the "method, manner, and operative detail" of a specific portion of the contractor's work. By retaining control, the companies may be liable directly for the negligence of the contractor if it fails to exercise its control with reasonable care. The court noted that companies concerned with only the finished results of the contractor's work are not liable.

As evidence that Oasis retained control, Mrs. Kronberg asserted that Oasis controlled Bader by mandating that he select third-party vendors from a vendor list that Oasis provided. Mrs. Kronberg also cited Oasis's control over the land where the Ross well was located. The court affirmed that this evidence does not demonstrate Oasis controlled the "operative details" of Bader's work for purposes of retained-control liability.

For retained control by RPM Consulting, Mrs. Kronberg relied principally on the subcontract, which provided that Bader must "comply with standard safety practices, any OSHA requirements applicable to [his] work and any safety practices required by RPM and/or RPM's customers." The court noted, however, that the contract also states that RPM Consulting "shall have no direction or control" of Bader.

Mrs. Kronberg also argued RPM Consulting exercised actual control of safety practices by offering safety training to company hands. RPM Consulting, however, did not require company hands to complete the training, and it was undisputed that RPM Consulting had no safety requirements in place at the time of Mr. Kronberg's death. The court held there was no genuine issue of material fact as to Oasis' or RPM Consulting's lack of control over Bader's safety practices, and neither company owed a duty to Mr. Kronberg under the doctrine of retained control. Thus, neither company may be held liable for Bader's alleged negligence as a company hand. Summary judgment affirmed. Kronberg v. Oasis Petroleum N. Am., LLC, 831 F.3d 1043 (8th Cir. 2016).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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