I. Introduction
In this paper, we argue that the right to limitation of liability pursuant to the Shipowner's Limitation of Liability Act, 46 U.S.C., § 30501 et seq., (hereinafter "the Limitation Act") should not be deemed lost in a single claimant case, or in a case filed by multiple claimants joining together as co-plaintiffs in the same state court action, or federal action under diversity jurisdiction, merely because a petition for limitation of liability was not timely filed in an admiralty court, within the sixmonths period after the petitioner vessel owner received notice of a written claim.
We argue that a state court or a federal court sitting under diversity jurisdiction has the jurisdiction to adjudicate all issues regarding the defense of limitation of liability, provided same is timely raised in any such actions, even after the six-month period has lapsed from the time the defending vessel owner received notice of a written claim.
II. The Limitation Act's Overview
The Limitation Act was originally enacted in 1851, and it is currently codified at 46 U.S.C. §§ 30501 et seq. "Congress passed the [Limitation Act] to 'encourage ship building and to induce capitalists to invest money in this branch of industry.'" In re Key W. Jetski, Inc., 619 F. Supp. 3d 1216, 1218 (S.D. Fla. 2022) citing In re Beiswenger Enters. Corp. v. Carletta, 86 F.3d 1032, 1036 (11th Cir. 1996). The Limitation Act "seeks to limit the liability of 'innocent shipowners' beyond the amount of their interest in the vessel." Id.
Claims subject to limitation "are those arising from any embezzlement, loss, or destruction of any property, goods, or merchandise shipped or put on board the vessel, any loss, damage, or injury by collision, or any act, matter, or thing, loss, damage, or forfeiture, done, occasioned, or incurred, without the privity or knowledge of the owner." 46 U.S.C.A. § 30523(b).1
The Act applies to seagoing vessels and vessels used on lakes or rivers or in inland navigation, including canal boats, barges, and lighters, but it does not apply to "small passenger vessels," as defined by the Act. 46 U.S.C. § 30502.2
Section 30523(a) is the main substantive provision of the Limitation Act, providing in pertinent part that "the liability of the owner of a vessel for any claim, debt, or liability ... shall not exceed the value of the vessel and pending freight." Id.; Howell v. Am. Cas. Co. of Reading, Pennsylvania, 96-0694 (La. App. 4th Cir. 3/19/97), 691 So. 2d 715, 731, writs denied, 97–1329, 1379, and 1426 (La.9/5/97), 700 So.2d 512, 515, and 518. However, in the case of seagoing vessels, "[i]f the amount of the vessel owner's liability determined under section 30523 ... is insufficient to pay all losses in full,
and the portion available to pay claims for personal injury or death is less than $420 times the tonnage of the vessel, that portion shall be increased to $420 times the tonnage of the vessel. That portion may be used only to pay claims for personal injury or death." 46 U.S.C. § 30524(b).3
Of less relevance to this paper, the Limitation Act contains a limitation of liability provision in cases involving medical malpractice. It provides that in a civil action against a vessel owner for vicarious liability for the medical malpractice of a shoreside doctor or medical facility employed by the vessel owner, the vessel owner shall be entitled to rely on any statutory limitations of liability applicable to the doctor or medical facility in the State of the United States in which the shoreside medical care was provided. 46 U.S.C. § 30528.
The so-called Fire Statute is also part of the Limitation Act. Section 30522 provides that "[t]he owner of a vessel is not liable for loss or damage to merchandise on the vessel caused by a fire on the vessel unless the fire resulted from the design or neglect of the owner." 46 U.S.C. § 30522.4 There has been some disagreement among the Courts of Appeals regarding what a carrier must show under these statutes to assert the fire defense after a shipper has made a prima facia case of damage or loss. The United States Court of Appeals for the Ninth Circuit has held that the carrier cannot assert the fire defense unless it carries the burden of proving due diligence to make the vessel seaworthy and properly man, equip, and supply the vessel, Nissan Fire & Marine Ins. Co. v. M/V Hyundai Explorer, 93 F.3d 641, 645 (9th Cir. 1996). However, the United States Courts of Appeals for the Fifth, Second, and Eleventh Circuits have taken the position that the carrier need only show that the loss resulted from fire, and the burden then shifts back to the shipper to show that the fire was caused by the design or neglect of the shipowner. Westinghouse Elec. Corp. v. M/V "Leslie Lykes," 734 F. 2d at 206; In re Complaint of Ta Chi Navigation (Panama) Corp., S. A., 677 F.2d 225, 229 (2d Cir. 1982); Banana Servs. v. M/V Tasman Star, 68 F.3d 418, 421 (11th Cir. 1995).
Aside from section 30523, section 30529 of the Limitation Act5 "provides for a procedure known as a 'concursus,' whereby the vessel owner can file a petition in federal court evoking the limitation of liability provision of [§30523]." Howell v. Am. Cas. Co. of Reading, Pennsylvania, supra. "The purpose behind a Section [30529] proceeding in federal court is to permit all actions against the vessel owner to be consolidated in a single case which will then dispose of all claims simultaneously." Id., citing Complaint of Caldas, 1973 AMC 1243, 1255–56, 350 F. Supp. 566, 575 (E.D. Pa. 1972), aff'd 485 F.2d 678, 679 (3rd Cir.1973). "Congress established the Section [30529] concursus procedure because maritime casualties often involve interstate commerce with injuries to multiple parties with diverse domiciles. As a result, a ship owner can be subject to multiple suits by multiple parties in multiple forums." Id.
Rule F of the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions sets forth the procedures applicable to concursus proceedings. Pursuant to Rule F, not later than six months after receipt of a written claim, the vessel owner may file a complaint in the appropriate district court for limitation of liability. The vessel owner deposits the value of the owner's interest in the vessel and pending freight with the court.6 The court then marshals all claims against the vessel owner by enjoining the prosecution of other actions relating to the accident and requiring all claimants to file their claims in the limitation action. The court then, sitting without a jury, determines whether the vessel owner is liable, i.e., whether the shipowner was negligent or whether conditions of unseaworthiness caused the accident. If the claimants prove that the shipowner is liable, the burden shifts to the shipowner to show that its liability should be limited to the value of the vessel. Hercules Carriers, Inc. v. Claimant State of Fla., Dep't of Transp., 768 F.2d 1558, 1564 (11th Cir. 1985). "This burden is not met by simply proving a lack of actual knowledge, for privity and knowledge is established where the means of obtaining knowledge exist, or where reasonable inspection would have led to the requisite knowledge. Thus, knowledge is not only what the shipowner knows but what he is charged with discovering in order to apprise himself of conditions likely to produce or contribute to a loss." Id. (internal citations omitted). If the court concludes that liability is limited, the court distributes the limited fund among the claimants in proportion to the amounts of their respective claims. Rule F of the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions ; Lewis v. Lewis & Clark Marine, Inc., 531 U.S. 438, 448, 121 S. Ct. 993, 148 L.Ed.2d 931 (2001).
Over the years numerous courts have held that 46 U.S.C. § 30523 permits a vessel owner to assert limitation of liability as an affirmative defense in federal or state court without being subject to the six-month time limitation that section 30529 imposes on offensive limitation proceedings. See, The Scotland, 105 U.S. 24, 33-34 (1882) (noting that the rules adopted to invoke the right to limitation of liability "were not intended to restrict parties claiming the benefit of the law, but to aid them[,]" and further expounding that "they were not intended to prevent them from availing themselves of any other remedy or process which the law itself might entitle them to adopt. They were not intended to prevent a defense by way of answer to a libel, or plea to an action, if the shipowners should deem such a mode of pleading adequate to their protection."); Signal Oil & Gas. Co. v. The Barge W-701, 654 F. 2d 1164, 1173 (5th Cir. 1981) ("A vessel owner may petition the district court, pursuant to [46 U.S.C. § 30529] for limitation of liability within six months of written notification to it of a possible claim; under section 185, the owner's petition in a particular case may well be the first filing in court. Section [30523], which established the substantive right of a vessel owner to limitation, also allows limitation to be pled as a defense in answer to an earlier filed damage suit. Williams took this route"); Deep Sea Tankers v. The Long Branch, 258 F. 2d 757 (2d Cir. 1958); The Chickie, 141 F. 2d 80, 85 (3d Cir. 1944); Van Le v. Five Fathoms, Inc., 1993 AMC 598 (D.N.J. 1992); In re Complaint of United States Lines, Inc., 616 F. Supp. 315, 316 (S.D.N.Y. 1985); Howell v. American Casualty Co., supra.
"Thus, the rule is that the vessel owner may raise the Section [30523] limitation defense in its answer in state court brought by the injured party under the saving to suitors clause of [28 U.S.C. § 1333], as well as in a concursus proceeding brought in federal court by the vessel owner under Section [30529]." Howell v. Am. Cas. Co. of Reading, Pennsylvania, supra, citing Langne v. Green, 282 U.S. 531, 540–41, 51 S. Ct. 243, 246–47 (1931); Signal Oil & Gas Co. v. Barge W–701, supra; The Chickie, 141 F.2d at 84.
One purpose of the concursus proceeding, if not the main one, is to ease the handling of multiple claims arising from the same incident and to avoid inconsistent results and repetitive litigation. Complaint of Paradise Holdings, Inc., 795 F.2d 756, 761 (9th Cir. 1986). The fact that this concursus proceeding is within the exclusive jurisdiction of the federal court is apparent from the wording of section 30529, which specifically requires the action to be filed in federal district court. 46 U.S.C. § 30529(a). Courts have recognized that no concursus proceeding is needed and, thus, claimants may proceed outside the exclusive jurisdiction of the federal admiralty court, in two situations. The first is when the value of the vessel and its cargo exceeds the aggregate of the total number of claims filed against the owner. See Lake Tankers Corp. v. Henn, 354 U.S. 147, 152 (1957). In such a case, "a concursus is unnecessary because the claimants need not compete among themselves for larger portions of a limited fund." In re Midland Enters. Inc., 886 F.2d 812, 814 (6th Cir. 1989) (citation omitted). The second is when only a single claimant brings an action against the shipowner seeking damages in excess of the value of the vessel. In that case, a concursus is unnecessary because there are no additional claimants competing for portions of the limitation fund. See S & E Shipping Corp. v. Chesapeake & O. Ry. Co., 678 F.2d 636, 643 (6th Cir. 1982).
III. The Restricted or Traditional Jurisdictional View
Courts have recognized the inherent conflict between a plaintiff's right to sue in state court under the savings to suitors clause, 28 U.S.C. § 1333, and a vessel owner's right to seek limited liability in a federal district court under section 30529 and Supplemental Rule F. Courts have typically spoken of the dilemma as a "'recurring and inherent conflict between the saving to suitors clause ... with its 'presumption in favor of jury trials and common law remedies,' and the 'apparent exclusive jurisdiction' vested in admiralty courts by the Act." Magnolia Marine Transp. Co. v. Laplace Towing Corp., 964 F. 2d 1571, 1574 (5th Cir. 1992).
When the first case under the Act worked its way through the courts in 1872, the Supreme Court observed that the Act did not designate which courts had jurisdiction over limitation rights nor specify the procedure for vessel owners to avail themselves of the statutory limits of liability. See Norwich Co., v. Wright, 80 U.S. (13 Wall) 104 (1871). Upon consideration of the matter, the Court held that "we have no doubt that the District Courts, as courts of admiralty and maritime jurisdiction, have jurisdiction of the matter ..." Id., at 124.
After the Norwich decision, the general consensus by courts and practitioners has been that the United States district courts, sitting in admiralty, have exclusive jurisdiction to determine limitation rights. See, Vatican Shrimp Co., Inc., Solis, 820 F.2d 674, 678-79, 1987 AMC 2426 (5th Cir. 1987); Cincinnati Gas & Elec. Co. v. Abel, 533 F.2d 1001, 1005 (6th Cir. 1976).
In Vatican Shrimp, for instance, an injured seaman sued the vessel owner in a Texas state court, alleging negligence and unseaworthiness. Vatican Shrimp, 1987 AMC at 2427. In its answer to the complaint, the vessel owner raised the defense of exoneration from, or limitation of, liability. Id. A year and a half later, while the state court action was still pending, the owner petitioned the federal district court for limitation of liability. Id. The federal court dismissed Vatican Shrimp's section 185 petition as untimely, and an appeal was then taken. Id. The United States Court of Appeals for the Fifth Circuit rejected the notion that the defensive pleading of limitation in state court tolled the six-month time limit under section 185, further asserting that such a pleading did not provide the federal court with jurisdiction to hear the limitation action. Id., at 2432. This conclusion was no doubt correct, but the appellate court went further and, relying on the so-called Green cases, infra, held that the only way a shipowner can invoke the protection of the Limitation of Liability Act is to bring a section 185 petition in federal court within six months of receipt of a written notice of claim.
On this issue, the court held:
[W]e recognize that shipowners may choose to set up the defense of limitation of liability under either method: by pleading the substantive provisions of section 183 in a properly filed answer in any court, or by filing a section 185 petition in a federal district court. However, if a shipowner is sued in state court, the owner's failure to file a section 185 petition in a federal district court within six months after receiving written notice of the claim will result in forfeiture of the right to limit liability should the claimant contest the limitation defense. This is so
because solely filing in the state court an answer in which limitation is pled obviously does not provide a federal court with jurisdiction to act. In contrast, defensive pleading under section 183 in a federal district court answer does not present the same jurisdictional problems. The district court, having jurisdiction to hear the entire case initially filed with it, can adjudicate and rule on a limited liability issue that is raised in a properly filed answer.
In sum, once written notice of a claim is received, unless that notice is a complaint filed in federal court, the prudent shipowner would file a timely section 185 petition in district court and move to stay the federal proceedings on the limitation petition until such time as limited liability is contested. This practice will ensure that a federal court may exercise its exclusive jurisdiction to hear the limitation issue even if the claimant eventually files suit in a state court and contests limitation more than six months after giving written notice of the claim. 1987 AMC 2426, 2431-2432.
To view the full article click here
Footnotes
1. Formerly part of and cited as 46 USCA § 183(a), and later as 46 USCA § 30505(b).
2. The Act defines "covered small passenger vessel" as "a small passenger vessel, as defined in 46 USCS § 2101, that is not a wing-in-ground craft; and carrying not more than 49 passengers on an overnight domestic voyage; and not more than 150 passengers on any voyage that is not an overnight domestic voyage; and includes any wooden vessel constructed prior to March 11, 1996, carrying at least 1 passenger for hire.
3. Formerly codified as 46 U.S.C. § 183(b).
4 Formerly codified as 46 U.S.C. § 30505. It has long been held that the COGSA fire exemption, codified in 46 U.S.C. § 1304(2)(b), and the Fire Statute exemption are the same, except that COGSA extends to "carriers," not just the "owners" as in the Fire Statute. Westinghouse Elec. Corp. v. M/V "Leslie Lykes", 734 F.2d 199, 205 n.3 (5th Cir. 1984).
5. Formerly codified as 46 App. USCA § 185, and later as 46 USCA § 30511.
6. Given the costs and impracticalities associated with the placing of a vessel under the custody and care of the United States Marshall or designated trustee for the benefit of all potential claimants, the filing of a bond or letter of undertaking (LU) is the most common form used by practitioners to satisfy this requirement.
Originally Published by Benedict's Maritime Bulletin
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.
