Historical Background Anchors Judge Clement’s McBride Concurrence

On September 25, 2014, the Fifth Circuit Court of Appeals, sitting en banc, rendered its decision in the high-profile case McBride v. Estis Well Service, L.L.C.,12-30714, 2014 WL 4783683 (5th Cir. Sept. 25, 2014)McBride garnered national attention after the Fifth Circuit panel reversed the district court and held that punitive damages were available to seamen as a remedy for the general maritime law claim of unseaworthiness.  731 F.3d 505.  On rehearing, a majority of the Fifth Circuit judges determined that punitive damages were not available.  The majority opinion was about fifteen pages long and was followed by nearly sixty pages of concurring and dissenting opinions.

The first concurrence, penned by Circuit Judge Edith Brown Clement and joined by Circuit Judges Jolly, Smith, and Owen, took a closer look at the historical background that, in Judge Clement’s opinion, mandated the result reached by the majority.  Judge Clement dissected what she viewed as the three main points that McBride relied on and determined that, “[w]hen examined closely, none of these arguments establish McBride’s ultimate contention.”  Id. at *7.

Judge Clement first analyzed and concluded that United States Supreme Court jurisprudence does not require punitive damages in unseaworthiness cases.  The Judge noted that Exxon Shipping Co. v. Baker, 554 U.S. 471 (2008), only addressed the narrow issue of whether punitive damages were preempted by the Clean Water Act and that this narrowness accounted for the Court’s need in Atlantic Sounding Co. v. Townsend, 557 U.S. 404 (2009), to even address the issue of punitive damages in maintenance and cure cases.  According to Judge Clement, this left McBride with “only the thin strand of Townsend.”  McBride at *7.  However, Townsend, a maintenance and cure case, was of little help in light of the “significant differences” between actions for maintenance and cure and unseaworthiness.  Judge Clement cleverly cited to the academic writings of McBride’s own counsel to underscore the well-recognized distinction between the two causes of action. The Judge concluded that “[t]he difference between maintenance and cure and unseaworthiness actions make maintenance and cure cases a poor guide for determining unseaworthiness remedies.”  McBride at *8.

Judge Clement went on to examine the Fifth Circuit’s pre-Miles case law approving punitive damages in unseaworthiness cases, starting with In re Merry Shipping, Inc., 650 F.2d 622 (5th Cir. Unit B 1981).  She concluded that, notwithstanding Merry Shipping and a handful of other cases, there is an absence of actual authority establishing that pre-Jones Act plaintiffs claiming unseaworthiness were entitled to punitive damages.  The Judge characterized the support for such entitlement to punitive damages the result of a “collective judicial ‘oh, hell, why not’ principle” equating the availability of punitive damages in other types of actions to the availability of punitive damages for unseaworthiness.  McBride at *9.

Finally, Judge Clement waded through pre-Jones Act unseaworthiness cases cited by McBride in support of the availability of punitive damages and found only one unseaworthiness case that arguably awarded punitive damages.  The Judge concluded that, even assuming that this case did award punitive damages, one “dust-covered” case should not provide the basis for the general availability of punitive damages in unseaworthiness cases.  This was particularly true when considering the Supreme Court decisions in The Osceola, 189 U.S. 158 (1903) and Pacific Steamship Co. v. Peterson, 278 U.S. 130 (1928) that recognized the remedy for unseaworthiness was an indemnity by way of compensatory damages.

Judge Clement concluded her concurrence by explaining the need for caution “before signing off on an aggressive expansion of punitive damages in the unseaworthiness context.”  McBride at *12.  This is a product of the varying availability of insurance for punitive damages and the direct and indirect impacts such an expansion would have on commercial shipping.  “In light of the potentially sizable impact, this court should not venture too far and too fast in these largely uncharted waters without a clear signal from Congress.”  McBride at *12.

McBride v. Estis Well Serv., L.L.C., 12-30714 (5th Cir. Sept. 25, 2014) (en banc).

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).

Failing to Participate in Proceedings Justified Dismissal With Prejudice

Plaintiffs, Atlantic Sounding and Weeks Marine, filed a declaratory judgment action seeking a declaration that they did not owe Maurice Fendlason, an injured seaman-employee, maintenance and cure benefits.  Fendlason answered and filed a counterclaim for damages, as well as maintenance and cure.  But then Fendlason’s participation in his case stopped.  He failed to appear for proceedings, failed to comply with court orders, failed to attend multiple scheduled depositions, and failed to participate with his (original) attorney.  After four months of these shenanigans, Plaintiffs filed a motion to dismiss.  The district court offered Fendlason an opportunity to show cause why his case should not be dismissed, but Fendlason failed to appear for the hearing.  Accordingly, the district court dismissed Fendlason’s action with prejudice.

The Fifth Circuit affirmed, even though alternative lesser sanctions were available.  Fendlason’s actions showed a “clear record of delay or contumacious conduct” sufficient to warrant dismissal.  He was given multiple opportunities to avoid dismissal, and he failed to take advantage of either.  Here, the “district court did not abuse its discretion when, after adequate warning, it dismissed the action with prejudice.

Atlantic Sounding Co., Inc. v. Fendlason, No. 13-30885 (5th Cir. Feb. 14, 2014).

Eleventh Circuit Affirms Lifting of Limitation Injunction for Single Claimant

In October 2011, Lisa Lynch was allegedly injured on a 26-foot luxury vessel owned and maintained by Offshore of the Palm Beaches, Inc. (“Offshore”).  Lynch’s attorney sent a letter of representation to Offshore and asked for its liability insurance information.  Offshore subsequently sought exoneration or limitation of liability pursuant to the Limitation Act.  All other causes of action against Offshore were enjoined by the district court.

Lynch answered the limitation complaint and asserted a claim for personal injury.  She later moved to dismiss, stay or lift the injunction under the single claimant exception so she could pursue her claim in state court.  Lynch stipulated that Offshore had the right to litigate its entitlement to limitation in the limitation proceeding, that the federal court would determine the limitation fund, that she would not seek determination of theses issues in state court and that she would not seek to enforce a judgment in excess of the limitation fund until these determinations were made.  When it was apparent that Lynch was the lone claimant, the district court lifted the injunction.  Offshore appealed.

Finding that it had jurisdiction under 28 U.S.C. § 1291(a)(1) to review the district court’s order modifying or dissolving an injunction, the United States Court of Appeals for the Eleventh Circuit considered whether the district court abused its discretion in lifting the injunction.  The court went through the well-established limitation procedures and noted that the exclusivity of admiralty jurisdiction in this arena is at odds with the “saving to suitors” clause in 28 U.S.C. § 1333.  The United States Supreme Court has eased this tension in some cases by crafting the single claimant exception.  This exception recognizes that in single-claim scenarios, the specialized admiralty procedure is not necessary.  A district court has discretion to stay the limitation case and allow the claim to proceed in another forum subject to stipulations that protect the vessel owner from judgments in excess of the limitation fund.

Offshore argued on appeal that it was the “suitor” under § 1333 and when it filed its limitation action, its choice of forum was secured.  The court quickly rejected this argument, explaining that Lynch, the limitation claimant, was the suitor whose remedies were saved in § 1333, not the vessel owner.  The court further reasoned that this first-to-file rule advocated by Offshore would expand the Limitation Act from a protection of the vessel owner’s right to limit its liability to a choice of forum to defend claims.  The court also rejected Offshore’s argument that Lynch submitted to federal jurisdiction by filing a claim in the limitation.  Lynch made no Rule 9(h) election and premised her claims on Florida common law.  Accordingly, she was not precluded from having her claim heard in an alternate forum.

Offshore attempted to raise other arguments for the first time on appeal but these arguments were deemed waived by the court as they were not raised at the district court level.  After disposing of the issues properly on appeal, the Eleventh Circuit affirmed the district court’s order lifting the limitation injunction.

Offshore of the Palm Beaches, Inc. v. Lynch, — F.3d —-, 2014 WL 350826 (11th Cir. Feb. 3, 2014).