To Control, or Not to Control; that is the Question

On August 12, 2014, Judge Eldon E. Fallon of the United States District Court for the Eastern District of Louisiana denied a Motion for Summary Judgement on the issue of respondeat superior in the case of Bittel v. Chevron US.A., Inc., et al.  Plaintiff Thomas Bittel filed suit after he was injured while working aboard a Chevron-owned fixed platform in the Gulf of Mexico.  Plaintiff alleges that he was injured as a result of the actions of Defendant Danny Gauthreaux, who Plaintiff claims, was acting as a borrowed servant for Chevron at the time of injury.  Chevron, on the other hand, claims defendant Gauthreaux was acting as an employee of independent contractor company, Audubon, and thus, Chevron was not liable for his actions.  The District Court for the Eastern District of Louisiana held that too may factual determinations existed to warrant granting Chevron’s motion for summary judgment.

The Court, applying Alabama state law, explained the importance of distinguishing between an employee and an independent contractor; “ordinarily, a principal is not liable for the incidental physical acts of negligence in the performance of duties committed by an agent who is not an employee, but an employer is held liable to third parties for an employee’s negligence under the doctrine of respondeat superior.”  Langfitt v. Federal Marine Terminals, Inc., 647 F.3d 1116 (11th Cir. 2011).  Furthermore, under Alabama law, when a premises owner reserves the right to control an independent contractor, the relationship transforms to that of master and servant, in which the premises owner will be held liable for the negligent acts of the independent contractor.

To determine whether or not Chevron was liable for the negligent acts of Defendant Gauthreaux, the court examined the terms of contract between the parties and the actual conduct of the parties.  While the contract specifically stated Defendant Gauthreaux’s employer, Audubon, would be an independent contractor, the actual conduct of the parties proved otherwise.  For instance, Chevron utilized Defendant Gauthreaux as a liaison between its engineers and Audubon’s personnel.  And while Chevron could not fire any of the Audubon employees, Chevron could dismiss Audubon’s employees at any point during the job.  Allowances such as these led the Court to conclude that a motion for summary judgment was improper; there were material facts in dispute regarding whether Chevron retained the right to control Defendant Gauthreux’s work, and was thus liable for his allegedly negligent actions.

Jones Act Employees Could Not Sue a Dual-Listed Company

On August 12, 2014, the Eleventh Circuit published a decision discussing jurisdiction and business entity structure in the context of a Jones Act lawsuit.  The plaintiffs were three injured sea workers, each of whom collected maintenance and cure.  Those were the benefits that the injured sea workers and other employees agreed to in their contracts with Cunard Celtic Hotel Services, Ltd.  The plaintiffs became unsatisfied with the extent of their maintenance and cure, believing that the contracts impermissibly limited their compensation.  So, they filed a class action against Carnival Corporation and Carnival PLC.

The Defendants’ corporate structure was particularly important here.  Cunard operated “under the corporate umbrella of Carnival Corporation & PLC–the dual-listed company (“DLC”) comprised of Carnival Corporation (a Panamanian corporation headquartered in Miami, FL) and Carnival PLC (a British corporation headquartered in Southampton, England).” 

The district court dismissed the plaintiffs’ lawsuit, determining that the court did “not have personal jurisdiction over the dual-listed corporation Carnival Corporation and PLC.”  The plaintiffs appealed, asking the Eleventh Circuit to determine whether, under the laws of Florida, the Carnival Corporation & PLC, a dual-listed company, was subject to suit as a corporation, according to the doctrine of estoppel, or under a joint venture theory of liability.  It was not.

The Eleventh Circuit first explained the structure of a DLC:

A dual-listed company (DLC) is a corporate structure that binds two separate corporations into a unified economic enterprise, but allows the participating entities to maintain their individual legal identities.  The arrangement is established through the execution of an equalization agreement, a contract that defines and governs the relationship between the two companies.  Such a structure bears many merger-like qualities, such as common ownership of assets and integrated management, but also exhibits some hallmarks of corporate independence, such as separate stock exchange listings.  Almost always utilized by corporations of disparate national origin, DLCs are employed for a variety of reasons, including the advantages they potentially offer in the areas of tax, investor/public relations, and regulatory oversight.

But is a dual-listed company suable as a corporation?  No.  “Indeed, regardless of whether an entity exhibits qualities common to corporations, it is not properly subject to treatment as a corporation absent incorporation, the fundamental act of corporate creation and the dividing line between corporations and non-corporations.”

Further, Carnival & PLC was not estopped from denying that it was a corporation, even if it had publicly promoted itself as a single entity.  The plaintiffs lodged an interesting argument called “corporation by estoppel,” which the state of Florida codified:

No body of persons acting as a corporation shall be permitted to set up the lack of legal organization as a defense to an action against them as a corporation, nor shall any person sued on a contract made with the corporation or sued for an injury to its property or a wrong done to its interests be permitted to set up the lack of such legal organization in his or her defense.

The Eleventh Circuit reasoned that “the doctrine of corporation by estoppel is most appropriately used to maintain the expectations of parties to a contract, allowing a ‘corporation [to] sue and be sued as if it exited if the parties to the contract behaved as if it existed.’”  But here, the plaintiffs had employment contracts with Cunard, not Carnival & PLC.  The plaintiffs never alleged that they believed they were contracting with Carnival & PLC, or that Carnival & PLC was a legal entity capable of being sued.  Accordingly, the doctrine of corporation by estoppel was not applicable.

The court also determined that Carnival & PLC was not suable as a joint venture.  The plaintiffs sought to liken DLCs to “a joint venture on steroids.”  Not so.  A joint venture is “an association of persons or legal entities to carry out a single business enterprise for profit.”  Even though DLCs and joint ventures are collaborative in nature, “the scopes of the two structures are diametrically distinct, thereby rendering inappropriate the application of Florida’s joint venture laws to Carnival Corporation & PLC.”

Finally, the Eleventh Circuit concluded its opinion with a zinger–essentially stating that the plaintiffs outfoxed themselves:

Our ruling today–that Carnical Corporation & PLC is not properly suable in this action–may appear, at first glance, to produce a harsh and unfair result.  However, the Seafarers could have pressed their claims against another entity.  Indeed, it seems abundantly clear that the Seafarers could have brought an action against Carnival PLC (the Cunard Line’s parent company), but chose not to, instead making a tactical decision to pursue potentially broader claims against Carnival Corporation & PLC.  The Seafarers rolled the dice in targeting Carnival Corporation & PLC exclusively in this case; unfortunately for them, that roll did not pay off.

Sabo v. Carnival Corp., — F.3d —- (11th Cir. 2014).

Recent Development of Interest: Watervale Marine v. U.S. Dept. of Homeland Security

In July the U.S. District Court for the District of Columbia, in a case of first impression, considered whether the U.S. Coast Guard had authority to impose non-financial conditions for the release of a foreign flag vessel that it had detained at a United States port due to suspected violations of federal and international environmental law.  (Watervale Marine Co., LTD v. U.S. Department of Homeland Security, et al.)

The plaintiff is owner of four foreign flagged merchant vessels that the Coast Guard detained for investigation of criminal violations and later released, but only after plaintiff had posted a bond and executed a “security agreement” that contained various non-financial obligations.  Plaintiff challenged the non-financial security agreements that it had been required to execute in order to gain release of the vessels on the grounds that the Coast Guard lacked statutory authority to require any such condition prior to releasing the vessels.

The underlying facts were not in dispute.  Whistleblowers on board each ship had reported to the Coast Guard alleged violations of the Act to Prevent Pollution from Ships (“APPS”, 33 U.S.C. 1901-1915), which was passed with the intent to “achieve complete elimination of intentional pollution of the marine environment by oil and other harmful substances…”.  APPS was enacted by Congress because the United States had entered into a treaty with other foreign nations called the International Convention for the Prevention of Pollution from ships, commonly known as MARPOL.  As a signatory to the MARPOL, the U.S. was required to enact laws to administer and enforce MARPOL.  Thus APPS was conceived.

Under APPS the Coast Guard is authorized to board and inspect ships that call on U.S. ports in order to detect violations of APPS and other environmental laws.  Before departing a U.S. port a foreign flag ship must obtain departure clearance from Customs and under APPS the government can withhold clearance for established or suspected APPS violations.  APPS also provides that a ship that has been so detained and which may be liable for a fine or civil penalty may be granted clearance upon filing of a bond or other satisfactory surety.

The “non-financial” obligations imposed on Watervale to gain release of its vessels were exacting.  It required the crew to remain in the jurisdiction until the investigation was complete, that Watervale had to pay the crew their wages and provide housing and a per diem, keep the crew on as employees, encourage the crew to cooperate with the Coast Guard, arrange for repatriation of the crew, stipulate to authenticity of documents and items seized, help the government serve subpoenas on crew located abroad, waive objections to the jurisdiction and enter an appearance in federal court.  Faced with the prospect of serious financial loss if its vessels were not released Watervale signed the agreement.  This was in addition to a surety bond paid out to the United States if the government prevailed in subsequent prosecution and a judgment entered against Watervale.

In a lengthy decision the Court concluded that APPS, as written, did not put constraints on the power of the Coast Guard to determine the conditions to which a vessel owner must agree to gain release of its vessel.  It found that with passage of APPS, Congress places the question of whether, and under what circumstances, departure clearance is to be granted entirely within the Coast Guard’s discretion.  Put another way, even if Watervale was correct that a bond or other “financial” surety is a necessary prerequisite for release by the Coast Guard, the statute makes clear that the Coast Guard “may” release the vessel upon posting of such a bond, and does not provide any statutory standards by which to assess the circumstances under which the Coast Guard may or may not grant clearance.  Thus, the Coast Guard was free to impose any other conditions is thought appropriate in the exercise of its discretion.

Of perhaps more relevance to the day to day operation of our Port, after a long delay the Transportation Security Administration began nationwide implementation of the TWIC OneVisit program.  This program, the result of years of urging by industry and certain members of Congress, reforms the process of procuring a TWIC card so that the applicant does not have to make two in-person visits to an enrollment center to retrieve his card.  Now, the applicant can apply for his card at an enrollment center and then have his card mailed to him.  For many mariners this is significant given the time and expense they have had to incur making this extra trip.  As stated by Rep. Don Young, (R-Alaska), this reform was necessary so that “thousands of transportation workers across the nation can spend less time traveling to TWIC offices and more time working to put food on their families’ tables”.  Visit www.tsa.gov for more information

It’s Our Settlement and We Can Cry If We Want To: Limited Powers of ALJs

In a decision dated July 28, 2014, the Benefits Review Board defined, or rather, clarified, the limited circumstances in which an administrative law judge can alter the terms of a Section 8(i) Settlement Agreement.

Claimant allegedly suffered from asbestosis and hearing loss as a result of his employment with Employer.  While Employer controverted Claimant’s alleged lung disease from the outset, it compensated Claimant for his hearing loss.  The parties, both of whom were represented, negotiated terms of settlement and submitted an Section 8(i) Settlement Agreement to the administrative law judge for approval.  A duplicate copy was sent to the Connecticut Workers’ Compensation Commission pursuant to the state’s compensation act.

On August 13, 2013, the administrative law judge issued a decision and order approving the parties’ Section 8(i) Settlement Agreement; he concluded it was adequate and not procured by duress.  However, the administrative law judge took it upon himself to alter the agreement.  The judge reduced the attorney’s fees by an amount he thought appropriate but allocated the difference to the Claimant.  The judge also made approval contingent on the Connecticut Workers’ Compensation Commission approval, and held the insurance carrier liable for the settlement proceeds when it wasn’t a party to the agreement.

On appeal to the Benefits Review Board, the Claimant argued the administrative law judge did not have proper authority to alter a settlement agreement between the parties.  The Benefits Review Board agreed the administrative law judge’s actions were not in accordance with law.  In reaching this decision, the Board explained the limited options of a administrative law judge when reviewing a Section 8(i) Settlement Agreement: 1) issue a deficiency notice if the application is incomplete, 20 C.F.R. 702.242, 702.243(b); 2) approve the settlement if it is adequate and not procured by duress, 33 U.S.C. 908(i)(1); 20 C.F.R. 702.243(b); 3) disapprove the settlement if it is inadequate or was procured under duress, 33 U.S.C. 908(i)(1)-(2); 20 C.F.R. 702.243(b), (c); or 4) do nothing, in which case, if the parties are represented by counsel, the settlement will be deemed approved after 30 days, 33 U.S.C. 908(i)(1); 20 C.F.R. 702.243(b).  Other than these provisions, an administrative law judge is not authorized to modify the terms of the parties’ agreement, whether deliberately or inadvertently.  The Benefits Review Board modified the order approving the settlement to reflect the parties’ original terms and intentions.

Losacano v. Electric Boat Corp., BRB No. 13-0554 (2014).