Fifth Circuit Addresses Bailment and Eroding Policy Limits After Vessel Sank

 National Liability & Fire Ins. Co. v. R&R Marine, Inc., — F.3d —- (5th Cir. 2014):

This case arises after the sinking, and subsequent salvage, of a vessel owned by Hornbeck Offshore Services. Hornbeck Offshore owned the M/V Erie Service, which was in need of repairs.  Hornbeck entered into a Shipyard Repair and Drydock Agreement with R&R Marine for the repair and refit of two of Hornbeck’s vessels, one being the M/V Erie Service, at R&R Marine’s shipyard.  Per this Agreement, Hornbeck retained access to its vessel and reserved its authority over the vessel with the use of two on-site managers.  Despite Hornbeck’s oversight, it was undisputed that the Erie Service was in the custody of R&R Marine upon delivery.

On September 12, 2007, the National Weather Hurricane Center issued a tropical storm warning which included an area in which R&R Marine’s shipyard was located.  R&R Marine ensured Hornbeck pumps were available should water entry become an issue.  R&R Marine also ensured Hornbeck the shipyard docks were monitored “around the clock.”  However, in anticipation of the weather advisory, R&R personnel evacuated the shipyard and failed to take any precautions, apparently underestimating the severity of the storm.  The following morning, the M/V Erie Service sank.

Hornbeck entered into a time-and-materials salvage bid which totaled $627,324.64.  Hornbeck and R&R Marine demanded National, R&R Marine’s insurer, pay the salvage costs directly.

National sought a declaratory judgment that it was not required to pay the salvage cost.  Hornbeck counterclaimed asserting National’s policy required them to pay for damage to the M/V Erie Service since it was in the custody of R&R Marine, its insured, at the time of loss.  Hornbeck filed a cross-claim asserting R&R Marine’s negligence proximately caused the sinking of the M/V Erie Service.

The district court held R&R Marine was negligent in failing to secure the M/V Erie and that National was required to pay Hornbeck salvage costs, and interest and attorney’s fees associated with said costs.  Both National and R&R appealed.

The Fifth Circuit concluded the district court did not clearly err in finding R&R Marine to be negligent.  Hornbeck had established a prima facie case of negligence, as the M/V Erie Service was delivered to R&R Marine afloat and R&R Marine had full custody of the vessel.  The Court did not agree with R&R Marine that only a limited bailment was created due to the presence of Hornbeck’s on-site managers; to the contrary, the Court determined the district court was not clearly erroneous in finding that neither the presence nor authority of Hornbeck’s personnel affected R&R Marine’s exclusive control and full custody.

R&R Marine next argued Hornbeck was unreasonable in choosing a time-and-materials salvage contract, as opposed to a less expensive, “no cure, no pay” agreement.  Again, the Court determined the district court’s determination of Hornbeck’s reasonableness was not clearly erroneous and therefore upheld its determination.

The district court determined National was liable for the salvage costs associated with the sinking of the M/V Erie Service, as provided by its policy with R&R Marine.  National argued Hornbeck lacked standing as a third-party claimant to bring its counterclaim.  The Court of Appeals, reviewing the district court’s decision de novo, looked to Texas law to determine the parties’ substantive rights.  The Court engaged in an analysis of procedural law application and determined Hornbeck had standing to assert its counterclaim but agreed with National that the district court erred in the total amount of damages awarded in excess of National’s policy limits.  Accordingly, the award to Hornbeck was reduced to $1,000,000.00 plus reasonable attorney’s fees.

Maritime Law Did Not Apply to Guest’s Drunk Driving Accident

The Supreme Court of Texas recently determined that admiralty jurisdiction did not apply to a horrific drunk driving crash simply because the driver responsible for the crash had been drinking on a small, chartered fishing boat.  The facts were not disputed.  A technology company hosted a business retreat at a lodge in Aransas Pass near the Gulf of Mexico.  On that retreat, one of the company’s clients drank excessively on a fishing boat.  The boat returned to the lodge, at which time the client left to drive home.  One-and-a-half hours later, the “significantly intoxicated” client crossed into oncoming traffic and struck a motorcycle.  Both motorcycle riders lost their left legs.  They sued the technology company, arguing that it negligently allowed their client to drink excessively.  Texas does not recognize such social host liability, so the plaintiffs asserted that federal maritime law applied to the case because the client became intoxicated on a fishing boat.

In Jerome B. Grubert, Inc. v. Great Lakes Dredge & Dock Co., the United States Supreme Court announced the test for determining admiralty jurisdiction over tort claims:

A party seeking to invoke federal admiralty jurisdiction . . . over a tort claim must satisfy conditions of location and of connection with maritime activity.  A court applying thee location test must determine whether the tort occurred on navigable water or whether injury suffered on land was caused by a vessel on navigable water.  The connection test raises two issues.  A court, first, must assess the general features of the type of incident involved to determine whether the incident has a potentially disruptive impact on maritime commerce.  Second a court must determine whether the general character of the activity giving rise to the incident shows a substantial relationship to traditional maritime activity.

The Supreme Court of Texas applied the Grubert test to the facts of the case.  It determined that a factual dispute exited regarding the plaintiffs’ ability to satisfy the location test.  The plaintiffs had submitted an expert’s analysis that the drunk driver’s level of intoxication indicated that he had been drinking on the fishing boat.  Therefore the court assumed for sake of argument that there was at least some evidence that a duty owed by the company was breached on the boat.

The plaintiffs were not as successful with the two-part maritime connection test because: (1) the consumption of alcohol by guests (not guides) aboard a small, chartered fishing boat does not pose a threat to commercial shipping; and (2) supervising the consumption of alcohol aboard a small, chartered fishing boat cannot be characterized as “substantially related to a traditional maritime activity.”  Because the plaintiffs could not satisfy the second part of the Grubert test, maritime law did not apply to their case.

Schlumberger Tech. Corp. v. Arthey, — S.W.3d —- (Tex. 2014).

Second Circuit Extends Federal Admiralty Jurisdiction to Foreign Judgment

D’Amico Dry Ltd. v.  Primera Mar. (Hellas) Ltd., — F.3d —- (2d Cir. 2014).

This case comes before the United States Second Circuit Court of Appeals on appeal from a decision of the United States District Court for the Southern District of New York.  In a decision dated August 1, 2011, the District Court dismissed plaintiff’s suit for lack of subject matter jurisdiction and denied reconsideration.  The District Court refused to enforce jurisdiction over the action which involved a claim to enforce a monetary judgment rendered by the English High Court of Justice.  In so deciding, the District Court determined that an action to enforce a foreign judgement is a separate civil action which imposes independent jurisdictional requirements; a suit to enforce a judgment rendered on a maritime claim is not in and of itself maritime in nature.  The Court rejected Plaintiff’s argument that enforcement of the English judgement is considered admiralty in nature because the claim on which judgment was originally rendered would have come within federal admiralty jurisdiction if brought within the United States.  Ultimately, the District Court determined the suit did not come within federal admiralty jurisdiction, 28 U.S.C. § 1333, because the English judgment was not rendered in an English admiralty court and the claim was not maritime under English law.

Plaintiff appealed the decision of the District Court, asserting that the maritime character of the underlying claim should be appraised under United States law.  The Second Circuit, on June 12, 2014, vacated and remanded the decision of the District Court.  Agreeing with Plaintiff’s argument, the Court determined that a United States court has jurisdiction to enforce a judgment of a foreign non-admiralty court if the claim underlying that judgment would be deemed maritime under United States law.

The Court was guided by historical concepts forming the basis of admiralty jurisdiction. Citing Penhallow v. Doane’s Administrators, 3 U.S. (3 Dall.) 54, 1 L.Ed. 507 (1795), the Second Circuit noted that a court of Admiralty can carry decrees of foreign admiralties into execution.  Over the years, this concept came to include the proposition that federal admiralty jurisdiction should also accommodate suits to enforce foreign judgments based on claims of maritime character.  The classification of the suit under foreign law, therefore, did not take precedent.  Allowing accommodation of so-called maritime claims shapes substantial policies: preference of specialized admiralty courts for the resolution of maritime disputes; promotion of uniformity in international trade; promotion of international comity by facilitating recognition of foreign judgments; and reflection of a constitutionally endorsed distribution of power between state and federal courts.  The Second Circuit reasoned that the underlying policies take priority over the classification of the court which rendered the original judgement.

Further, a final judgment of a foreign court serves as validation of the underlying claim.  This concept differs from enforcement of a settlement, which was the basis of the District Court’s relied-upon precedent.  The enforcement of a settlement doesn’t involve maritime service or maritime transaction.  A final judgment of a maritime claim, on the other hand, validates the maritime nature of the underlying claim.  Accordingly, there was good reason to hear the claim under the admiralty jurisdiction of the federal court.

Finally, the Second Circuit decided that in consideration of its prior rationale, strong theoretical and practical reasons are present for allowing the United States court to asses the maritime nature of the claim as opposed to reliance on a foreign classification.  First, the Constitution provides federal courts with exclusive jurisdiction over maritime matters; matters deemed maritime under United States laws should have access to federal courts.  An alternate nation’s definition and scope of “maritime” should not become an obstacle to this well-founded principle and guarantee.  Second, pursuant to the principles of choice of law, the decision whether a claim belongs in one court or another is jurisdictional and procedural; the law of the forum state is utilized for such a question.  Third, applying a “golden rule” approach, principles of comity favor reciprocal enforcement of foreign judgements in the hopes the same would be done for a judgement of the United States.  And finally, United States maritime classification and the importance that follows such classification, should not be hampered or threatened if a foreign nation chooses not to recognize such classifications.

In further support of its position, the court set forth practical reasoning why domestic classification of the claim is preferred.  Subject matter jurisdiction should be an area of quick resolve- “if the characterization of the claim under foreign law is controlling, the parties will be compelled in many cases to carry on expensive, cumbersome litigation involving dueling experts on foreign law, merely to determine whether the suit belongs in federal or state court.”  Federal courts are tasked with the task of confirming their jurisdiction, even if the parties do not bring it to their attention.  Ensuring this within the purview of United States law would obviate the need to inquire into the intricacies of the foreign judicial system, which could potentially extend the underlying litigation to an unnecessary level.

In conclusion, the Court held that a suit to enforce a foreign judgement may be heard under federal admiralty jurisdiction if the claim underlying the judgment would be deemed maritime under United States law.  The instant claim was remanded to determine whether the underlying claim is deemed maritime under the law of the Untied States.

Around the Longshore and Maritime Blogosphere

Happy Friday, everyone.  Here are some great Longshore and maritime related posts that I recommend reading.

The LexisNexis Workers’ Compensation Law Community published two interesting articles.  First up is Karen Koenig’s Update from the Benefits Review Board (May 2014).  In addition to important statistics about the Board’s caseload, the article addresses the Board’s recent interpretation of Section 2(3)(F) of the Longshore and Harbor Workers’ Compensation Act (“LHWCA”).  Congress amended Section 2(3)(F) in 2009.  It now excludes from coverage “individuals employed to build any recreational vessel under sixty-five feet in length, or individuals employed to repair any recreational vessels, or to dismantle any part of a recreational vessel in connection with the repair of such vessel . . . if [the individual is] subject to coverage under a state workers’ compensation law.”

Next up is The Loyola Current, which is published by the Loyola New Orleans Maritime Law Journal.  Recent posts include a summary of Exxon Mobil Corporation v. Hill, which has an important discussion about attorney-client privilege for in-house counsel advice.  Another post discusses a recent limitation of liability decision from the Norther District of New York.  There, the court determined that workers compensation was not subject to vessel owner limitation.

Over at John’s Longshore and Defense Base Act Blog, John Chamberlain discusses an important Office of Administrative Law Judges decision pertaining to the calculation of a Defense Base Act claimant’s average weekly wage.  This link will take you directly to the post.

Finally, the AEU Longshore Blog has an interesting post about suicide entitled,  Survivor’s Benefits in the Case of an Injured Worker’s Suicide.  The author makes valid points regarding the effect of Ninth Circuit’s Kealoha decision on a Section 3(c) suicide defense under the LHWCA.