The Supreme Court Denied Review in Dize and Other Maritime Cases

The Supreme Court is back in session.  On October 6, 2014, the Court issued its Orders list, wherein a large number of cases were denied certiorari.  Accordingly, the Court will not review:

Dize v. Association of Maryland Pilots.  The question presented in Dize was whether, when applying the Chandris, Inc. v. Latsis thirty-percent rule–that, ordinarily, a qualifying “seaman” under the Jones Act must spend thirty percent or more of his time in service of a vessel in navigation–a court may consider the time a maritime worker spends in the service of a vessel in navigation that is moored, dockside, or ashore, as the Third, Fifth, Sixth, and Ninth Circuits have held, or whether a court must categorically exclude such time, as the Eleventh Circuit and the Maryland Court of Appeals have held.

Gonzalvez v. Celebrity Cruises, Inc.  The petitioners asked the Court to consider whether seamen are statutorily exempt from the 3-month limitations period under Chapter 1 of the Federal Arbitration Act.  This case arose from dispute about sharing gratuities under the Seaman’s Wage Act.  This link will take you to Lisa Schaeffer’s Lexis article “U.S. Supreme Court Denies Cert for Celebrity Cruise Line Workers.”

Downer v. Royal Caribbean Cruises, Ltd.  This case asked inter alia whether the Eleventh Circuit’s decision compelling arbitration for seafarers’ claims against a cruise line, under foreign law, deprives them of their American statutory rights in violation of the “effective vindication doctrine.”

Lyles v. Seacor Marine.  In Lyles, the plaintiff lost a Jones Act and maintenance and cure claim nearly ten years before trying to reassert his claims.  The Fifth Circuit denied the plaintiff’s claims and also admonished the plaintiff, writing that “future frivolous, repetitive, or otherwise abusive filings may result in the imposition of sanctions, including dismissal, monetary sanctions, and restrictions on his ability to file pleadings in this court or any court subject to [Fifth Circuit] jurisdiction.”

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).

Defense Base Act Resolution and the Direct Payment of Future Benefits

When a Defense Base Act injury is caused by a “war-risk hazard,” then both the Defense Base Act and the War Hazards Compensation Act applies.  The application of both statutory schemes is important for all parties to a Defense Base Act claim because the War Hazards Compensation Act offers additional resolution options.  Specifically, employers and carriers may seek the direct payment of future Defense Base Act benefits if the underlying injury and disability was caused by a “war-risk hazard.”

The “War-Risk Hazard” Definition:

Generally, a “war-risk hazard” includes any hazard arising from the use of weapons or explosives; an “action” of a hostile force or person; the discharge of munitions intended for use in war no matter whether a hostile force or person is involved; the collision of vessels or aircraft in a zone of hostilities; and any mishap arising during “the operation of vessels or aircraft in a zone of hostilities or engaged in war activities.”  See 42 U.S.C. § 1711(b).  If the Defense Base Act claimant’s injury was caused by any hazard identified as a “war-risk hazard,” then the War Hazards Compensation Act applies.

Three Ways to Resolve the Underlying Defense Base Act Claim:

Typically, Defense Base Act claims are resolved one of three ways: settlement, stipulations, or formal hearing.  If the claim is resolved by settlement, then the claimant receives a lump sum and the claim is over.  No one can force a party to settle a Defense Base Act lawsuit; the parties must jointly and voluntarily agree to resolve their differences amicably.  More information about settlements can be found in the Longshore and Harbor Workers’ Compensation Act (33 U.S.C. § 908(i)) and the associated implementing regulations (20 C.F.R. §§ 702.241, 702.242, and 702.243).

If the parties don’t want to settle, another option for amicably resolving the Defense Base Act claim is to enter into stipulations.  Through this process, the parties come to an agreement that appropriately and accurately describes the claimant’s injury, medical treatment, average weekly wage, ongoing compensation rate (if any), and ability to return to work or engage in suitable alternative employment.  For a great discussion about settlements and stipulations, read Yelena Zaslavskaya’s article entitled, “Resolving Longshore Claims Through Settlements and Stipulations,” which is available on LexisNexis’ Workers’ Compensation Law Community webpage.

The third option is a formal hearing before an administrative law judge (“ALJ”).  The parties engage in discovery, take depositions, consult evidence, put on their case, and ask an ALJ to issue a Decision and Order to resolve all disputed issues.

Resolution of the DBA Claim and the Subsequent Direct Payment of Benefits:

When the underlying parties to the Defense Base Act claim enter into a settlement, direct payment is not usually a concern because most settlements resolve all aspects of the DBA claim.  On the other hand, when a Defense Base Act claim is resolved via stipulations or formal hearing, the employer and carrier will likely want direct payment.  So…what is it?

The direct payment concept is simple: when certain criteria are met, the government will pay Defense Base Act (or other similar) benefits directly to the injured worker in the place of the carrier.  Indeed, the carrier stops paying benefits (indemnity and medical) altogether once the government takes over.

The statutory authority for direct payment is found in 42 U.S.C. § 1704(a)(3), which states in pertinent part that “[t]he Secretary may, under such regulations as he shall prescribe, pay such benefits, as they accrue and in lieu of reimbursement, directly pay any person entitled thereto . . . .”  The regulation referred to by the statute is 20 C.F.R. § 61.105.  Boiled down to its simplest form, the direct payment regulation requires: (1) an order establishing the injured worker’s right to benefits; (2) proof that the worker’s injury was caused by a “war-risk hazard;” (3) a “relatively fixed and known” compensation rate; and (4) that the injured worker reach maximum medical improvement (“MMI”).

Although an MMI assessment is not an absolute regulatory requirement, most carriers prefer MMI prior to applying for direct payment.  Further, a Defense Base Act claimant who has reached MMI is not precluded from receiving future palliative medical treatment via the direct payment regulation–which is why 20 C.F.R. § 61.105 specifically addresses how medical benefits are paid: “[M]edical care for the effects of a war-risk injury may be furnished in a manner consistent with the regulations governing the furnishing of medical care under the Federal Employees’ Compensation Act, as amended . . . .”   In other words, medical benefits don’t stop when direct payment is granted; they are just handled a little differently by a different payor.

An employer’s and carrier’s application for reimbursement and direct payment is made to the Division of Federal Employees’ Compensation (“DFEC”).  Once DFEC reviews the application and supporting documents, it will decide whether it will reimburse the carrier and accept the claim for direct payment.  When a claim is accepted, DFEC sends a letter to the carrier notifying them of the day when benefits will shift to DFEC.  Also, DFEC sends a letter to the injured worker, telling them to notify their doctors that bills must be submitted to DFEC.

Once DFEC takes over, the carrier no longer pays benefits.  The Defense Base Act claimant will deal directly with DFEC and not the employer or carrier.  DFEC will ask the claimant to confirm continuing disability status–or widow/widower status if the claim is one for death benefits.  The Defense Base Act claimant is absolutely required to comply with DFEC’s requests.  Further, to my knowledge, DFEC does not enter into lump sum settlements with direct payment claimants.

Why Is This Important?:

In my opinion, every party should administer or litigate claims with an eye towards their preferred result.  Does the Defense Base Act claimant want to resolve the claim, accept a lump sum settlement, and move on with their life?  Or does the claimant want weekly benefits ultimately paid by the government?  On the other end of the spectrum, are the employer and carrier willing to pay a lump sum settlement?  Or would they rather seek direct payment, thus capping the amount of benefits they pay?  Each party must determine how they want to resolve the claim; but all parties should work together to move the claim towards resolution.

Punitive Damages Not Recoverable

In 1990, the U.S. Supreme Court held that a seaman who brings a claim for personal injury against his employer pursuant to the Jones Act for negligence, or under the general maritime law for unseaworthiness of the vessel, is not entitled to recover punitive damages.  (Miles v. Apex Marine Corp., 489 U.S. 19 (1990)).  Employers and insurers embraced the decision, and for close to twenty years the maritime community thought the matter was settled.  However, in the last eight to ten years this prohibition has been increasingly challenged by plaintiffs’ attorneys in courts across the country.  As a consequence there have been some judges who have held that the injured seaman may, in the appropriate circumstances, recover punitive damages for the employer’s willful, wanton and capricious refusal to pay maintenance and cure, and for gross disregard of its obligation to provide the seaman with a seaworthy vessel.  But there has been no consistency between the courts in their rulings, resulting in uncertainty.

On September 25, 2014 the Fifth Circuit Court of Appeals added its voice to the fray in the matter of McBride v. Estis Well Service, L.L.C. (Case:12-30714).  This case’s odyssey to the Court of Appeals began when a truck-mounted drilling rig, part of a barge owned by Estis, toppled over. One crew member was killed, three others injured.  Lawsuits were filed on behalf of each.  Each prayed for recovery of punitive damages.  Estis moved for dismissal of the punitive damage claims as not being recoverable as a matter of law. The federal District Court in Lafayette granted the Motion and held that punitive damages are not available to the injured seaman for unseaworthiness, and that his recovery is limited to pecuniary losses.  The decision was based, in part, on the theory that since Congress had included in the Jones Act (the law that provides the seaman with a remedy against his employer) the prohibition of recovery of punitive damages, the principle of uniformity dictated that the courts should not expand the seaman’s rights of recovery.  The plaintiffs appealed to the Fifth Circuit.

On October 2, 2013 the Court of Appeals reversed the District Court and held that punitive damages may be recovered by the seaman injured due to an unseaworthy condition of the vessel which is the consequence of the employer’s gross breach of its duty to provide a seaworthy vessel. In its lengthy decision, the three-judge panel essentially held that because the seaman’s right to recover punitive damages under the general maritime law was well-established prior to the enactment of the Jones Act, and because the Jones Act does not address unseaworthiness or limit its remedies, the crew of the Estis barge would be entitled to maintain their punitive damage claim.

Estis applied for a re-hearing and on February 24, 2014 the Court of Appeals ordered re-hearing before the entire Court.  This time the Court saw matters in a different light and reversed its earlier ruling.  Judge Davis, writing for the Court, ruled that the historical judicial and legislative record suggested that when the Jones Act limits the seaman’s recovery to pecuniary damages and prohibits recovery of punitive damages the “seaman may not use a general maritime claim to recover damages that would be unavailable under the Jones Act”.  Judge Davis went on to note that “on the subject of recoverable damages in a wrongful death case under the Jones Act and general maritime law, [the Supreme Court] has limited the survivor’s recovery to pecuniary losses” and that these plaintiffs suggested no reason why this analysis would not also apply to their asserting claims for personal injury.  Because punitive damages are designed to punish the wrongdoer and not to compensate the victim, by definition are not pecuniary losses.

But, chances are that this is not the end of this debate.  The plaintiffs will likely appeal to the higher court.  The decision written by Judge Davis was fifteen pages long; the dissent authored by Judge Higginson, and joined by five of his colleagues, measures thirty-seven pages.  Expect this issue to be the center of attention of other appellate courts resulting in contradictory decisions which will again draw the attention of the U.S. Supreme Court.  However, for the time being, at least within the venue of the Fifth Circuit Court of Appeals the seaman cannot recover punitive damages.