Seattle Maritime Law Blog : Seattle Maritime Lawyers & Attorneys : Mikkelborg Broz Law Firm : Collision and Salvage, Fisheries, Jones Act : Seattle, Washington

By Jess Webster

Harrington v. Atlantic Sounding Co., Inc., Case No. 07-4272-CV (2nd Cir., April 16, 2010).

Harrington, as seaman, suffered back injury while working on vessel owned by defendant Weeks Marine. Upon Harrington requesting financial support for prescribed back surgery, defendant weeks sent Harrington a “Claim Arbitration Agreement,” under which defendant agreed to advance Harrington 60 % of his usual wages as an advance against settlement provided Harrington agreed to arbitrate all claims.

Harrington brought suit in U.S. District Court and the defendant moved to dismiss the lawsuit, or stay the lawsuit pending arbitration pursuant to the arbitration agreement. The District Court denied the defendant’s motion finding the arbitration agreement to be unenforceable as matter of law under Section 6 of the Federal Employer’s Liability Act (“FELA”), 45 U.S. C. 56.

Court of Appeals noted Jones Act, 46 U.S.C. 30104, incorporated FELA and the case law interpreting FELA, and noted the body of case law invalidating agreements restricting an injured employee’s right to bring suit in an eligible forum, such as agreements restricting the employee’s choice of venue. Over a strong dissent, the majority of the court distinguished this body of law to find the arbitration agreement at issue to be enforceable. In doing so, the majority of the court relied largely upon the strong federal policy favoring arbitration under the Federal Arbitration Act (“FAA”), despite the fact that the FAA expressly excludes agreements for the employment of seamen.

While arbitration clauses in seamen’s employment agreements are prohibited, maritime employers and their insurance adjustors will likely rely upon this decision and increase efforts to secure post-injury arbitration agreements from injured seamen.
 

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A King County jury recently awarded an injured seaman $1.5 million in damages, which included $1.2 million in punitive damages against his employer, Icicle Seafoods of Seattle.  The plaintiff Dana Clausen argued, and the jury found, that Icicle had failed to pay for necessary treatment and had withheld a medical report substantiating the need for this treatment.  The jury found that the company "callously" refused to pay for this medical care, which justified a punitive damages award.

This case is notable in that it  comes shortly after the U.S. Supreme Court's decision of Atlantic Sounding Co. v. Townsend (previously discussed on the Seattle Maritime Blog), which held that that a seaman can recover punitive damages on a maritime maintenance and cure case if there is a showing of “willful and wanton” conduct by the defendant.

The jury's finding in this case appears to follow the logic of Atlantic Townsend in justifying punitive damages in a maritime injury claim, but it will be interesting to see whether Icicle will challenge this award or seek further clarification of this punitive damages rule from the appellate courts.

A brief story about this verdict was recently published by the Seattle Times.

Lafcadio Darling specializes in maritime and commercial litigation, representing a wide variety of business and consumer clients. In addition to being licensed in Washington and California, Lafcadio also holds an LL.M. from University College London and is a licensed solicitor in England & Wales

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The US Court of Appeals for the Second Circuit upheld the equitable vacatur of a maritime attachment, even though all the requirements for the Rule B attachment had been met. In Proshipline v. Aspen Infrastructures, the plaintiff sought and obtained a Rule B attachment in the Southern District of New York, based on the (correct) assertion that defendant was not present in the District. Defendant moved to vacate the attachment, pointing out that the parties were engaged in a similar maritime lawsuit in the Southern District of Texas, where plaintiff had its corporate headquarters and where defendant was subject to personal jurisdiction. The District Court vacated the attachment because, among other things, the party that attached the funds and the party that owned the funds were present in another federal jurisdiction. Plaintiff appealed. In affirming the vacatur, the Appellate Court noted that equitable vacatur of writs of attachment, in contrast to vacatur for failure to comply with Rule B, turns not on the owner of attached funds’ relationship with the jurisdiction of attachment, but on both parties’ relationship with another jurisdiction. See ProShipLine v. Aspen Infrastructures, www.ca.2.uscourts.gov/decisions.

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An increasing number of clients have had difficulty with the Washington State Department of Revenue's interpretation of RCW 88.02, regarding the registration of pleasure vessels in the State of Washington.  Washington imposes an excise tax on vessels over 16 feet in length for the privilege of using Washington waters for their vessels or yachts.  Boat owners obtain a Washington decal which they obtain paying the excise tax, measured at .5% of the vessel's value.  However, owners with vessels documented with the U.S. Coast Guard have often been told by Washington State Department of Licensing that only a decal is needed, not the registration, which would imply that the excise tax is not required. 

This apparent interpretation problem could result in a variety of results which is always a problem when dealing with taxing authorities. 

 

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On October 16, 2009, the Second Circuit Court of Appeals issued its decision of The Shipping Corporation of India v. Jaldhi Overseas PTE, Ltd., reversing its controversial 2002 decision of Winter Storm, Ltd. v. TPI. The Winter Storm court had held that electronic fund transfers (EFTs) could be seized under Admiralty Rule B as they momentarily pass through intermediary banks on the way to their final destination. Because this case applied to New York's intermediary banks, which handle the vast majority of international dollar transactions, the Winter Storm case caused an explosion of Rule B claims being filed in New York courts and against New York banks, attempting to seize funds being sent to and from defendants all over the world. This in turn gave rise to a large "cottage industry" within New York maritime firms, who quickly mastered this Rule B process and used the Winter Storm rule to great advantage for their clients and for themselves.

Although the Jaldhi Overseas court recognized that it should not reverse prior precedents lightly, the court found that (1) the Winter Storm court had incorrectly concluded that prior case law in the circuit supported the finding that EFTs were attachable and (2) in the absence of controlling admiralty law precedent, the court should have used New York state law, which says that EFTs are not the property of the transferor or transferee while in transit. The court also cited the significant and negative consequences of Winter Storm on New York courts and banks as justification for changing the law of the circuit.

Assuming this ruling stands, it is not an exaggeration to say that this case will send a shock wave through the maritime law community, particularly in New York City. Since 2002, hundreds of plaintiffs and their attorneys have used the Winter Storm rule to massively increase the Rule B practice in New York federal courts. This has obviously resulted in a significant new line of business for many New York maritime firms. The Second Circuit’s reversal of Winter Storm will not only change the legal landscape in the circuit, but will also likely deal a blow to the balance sheets and employment prospects of many New York attorneys and firms. In the current economic climate, that will hardly be welcome news for the admiralty bar in the Big Apple.

A longer discussion and description of this decision, is available on our firm website.

You can also view a copy of the Jaldhi Overseas decision.

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A few recent federal maritime decisions have shed further light on the boundaries of admiralty jurisdiction in the U.S. courts:

In Vasquez v. GMD Shipyard Corp., No. 08-4566 (2nd Cir., September 15, 2009), the Second Circuit Court of Appeals found that a tort claim arising out of a death at a shipyard "graving dock" was properly in admiralty, even though the dock had no water in it at the time of the incident.

In In re Complaint of Mission Bay Jet Sports, LLC, No. 08-56142 (9th Cir. June 24, 2009), the Ninth Circuit Court of Appeals found that a tort claim by passengers on a Sea-Doo watercraft who were injured while riding in San Diego's Mission Bay was subject to admiralty jurisdiction.

In New Hampshire Ins. Co. v. Home Sav. and Loan Co. of Youngstown, Ohio, No. 08-3902 (6th Cir. September 24, 2009), the Sixth Circuit Court of Appeals rejected the argument by an insurer that its policy, styled a "marine insurance policy," was sufficient to implicate federal admiralty jurisdiction in a declaratory judgment action, when a large number of the coverages in the policy were non-maritime.

Although none of these cases is ground-breaking or controversial, they do give lawyers valuable clues as to the positions the federal courts will take regarding admiralty jurisdiction with in certain common types of cases. 

Further description and commentary on these cases can be found here.

 

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In a recent decision (MacDonald v. Kahikolu, 2009 U.S. App. LEXIS 20162 (9th Cir. 2009)), the Ninth Circuit Court of Appeals held that the Pennsylvania Rule--which effectively shifts the burden of proving fault from plaintiff to defendant in certain maritime collision cases--should not be applied to maritime personal injury claims.

Although prior case law had suggested this conclusion, the MacDonald case has made the Ninth Circuit's position clear.  However, the MacDonald court also recognized that other federal appeals courts, including the Second, Third and Fifth Circuits, have read the Pennsylvania Rule more broadly and applied it to non-collision cases.

A further discussion of this case and a link to the court's opinion can be found here.

Lafcadio Darling specializes in maritime and commercial litigation, representing a wide variety of business and consumer clients. In addition to being licensed in Washington and California, Lafcadio also holds an LL.M. from University College London and is a licensed solicitor in England & Wales.

 

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Last month, the U.S. Supreme Court in Atlantic Sounding Co. v. Townsend, 2009 WL 1789469 (U.S. June 25, 2009) held that a seaman can recover punitive damages on a maritime maintenance and cure case if there is a showing of “willful and wanton” conduct.

In July 2005, Edgar Townsend was allegedly injured while working aboard the tug boat Thomas. His employer, Atlantic Sounding Co., Inc. sought declaratory judgment in a federal district court to determine its obligations toward him under maritime law. Mr. Townsend counterclaimed, alleging in part that Atlantic Sounding’s arbitrary and willful failure to pay maintenance and cure for his injuries justified punitive damages. Atlantic Sounding moved to dismiss and, when the motion was denied, appealed.

The United States Court of Appeals for the 11th Circuit affirmed the district court. The court held it was bound by its prior decision in Hines v. J.A. LaPorte, Inc. There, it concluded a seaman may recover punitive damages when an employer arbitrarily and willfully refuses to pay maintenance and cure for his injuries. It reasoned that the Supreme Court’s decision in Miles v. Apex Marine Corp. did not apply. In that case, the Court held that recovery for "non-pecuniary loss in the wrongful death of a seaman was not available under general maritime law". The court of appeals reasoned that Miles was not "clearly on point" to the facts in Mr. Townsend's case.

On appeal, the Supreme Court agreed with the lower courts, explaining that: "Because punitive damages have long been an accepted remedy under general maritime law, and because nothing in the Jones Act altered this understanding, such damages for the willful and wanton disregard of the maintenance and cure obligation should remain available in the appropriate case as a matter of general maritime law.” The Court also observed that “limiting recovery for maintenance and cure to whatever is permitted by the Jones Act would give greater pre-emptive effect to the Act than is required by its text, Miles [v. Apex Marine Corp., 498 U.S. 19 (1990)], or any of this Court's other decisions interpreting the statute."

In one sense, this case is not controversial since it only purports to maintain the existing rule for maritime cases.  However, the Supreme Court's significant reduction in punitive damages in the recent EXXON VALDEZ case suggested that the current Court disfavors punitive damages, particularly in maritime cases.  The Atlantic Sounding decision is interesting because shows that, despite its ruling in the EXXON case, the Court remains willing to recognize punitive damages in maritime cases.

A copy of the Court’s opinion can be found at http://www.supremecourtus.gov/opinions/08pdf/08-214.pdf
 

 

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In 2008, the U.S. Supreme Court limited the punitive damages award in the infamous Exxon Valdez case, holding that under maritime law the a punitive damages award is limited to 100% of the compensatory damages (see the Supreme Court’s 2008 opinion).

On remand, the Ninth Circuit Court of Appeals in Exxon Valdez v. Exxon Mobil Corp., 2009 WL 1652256 (June 15, 2009), held that interest on the punitive damages award should accrue from September 1996, the date of the original verdict against Exxon), not in 2008 when the final punitive damages award was fixed. Therefore, interest ran at a rate of 5.9% (the average accepted federal interest rate set by the Treasury) on the $507.5 million punitive damages award since September 24, 1996. The Ninth Circuit also held that each party must bear its own costs for the protracted appeals; Exxon had sought to have the plaintiffs bear all, or at least 90%, of Exxon’s appellate costs, since it had successfully reduced the original punitive damages award of $5 billion to $507.5 million.

Although hardly compensation for the large reduction in punitive damages by the Supreme Court, this ruling will give those who were damaged by the EXXON VALDEZ oil spill a somewhat better outcome and, perhaps more importantly, will move this case towards completion, more than 20 years after the spill. You can view a copy of the Ninth Circuit’s opinion.

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An earlier entry on the Seattle Maritime Law Blog reported the appeal in Consub Delaware, in which the defendant had requested that the Second Circuit Court of Appeals overturn its prior decision in Winter Storm v. TPI regarding Admiralty Rule B attachment of Electronic Fund Transfers (“EFTs”) to satisfy maritime claims. See Federal Appeals Court Considers Key Maritime Attachment Case (June 10, 2008).

The defendant in Consub Delaware argued that the Winter Storm court was incorrect in ruling that Rule B could be used to attach EFTs passing through New York banks, even if the claim had no relationship to New York and regardless of whether the defendant knew the funds would be passing through the jurisdiction. Consub Del. LLC v. Schahin Engenharia Limitada, 2008 U.S. App. LEXIS 20097 (2d Cir. N.Y. Sept. 23, 2008). The defendant also argued that the Winter Storm case was inconsistent with New York state law, which arguably provides that EFT payments are not the property of the sender or the recipient while in the hands of the intermediary bank. Id.

On September 23, 2008, the Second Circuit issued its decision in Consub Delaware, upholding Winter Storm and affirming the principle that EFTs can be attached while in the hands of intermediary banks, even when the underlying dispute has no relationship with either New York or with the funds being attached.  Holding that prior decisions should only be overruled  under certain narrow circumstances, the Consub Delaware court declined to overrule its prior decision and found that the Winter Storm case was correctly decided in any event. The court also held that New York law does not apply to Rule B actions, since federal law requires that the Admiralty Rules be applied uniformly and without regard to local law.

Interestingly, the Consub Delaware court stated in a footnote that “[w]e do not reach today the question of whether funds involved in an EFT en route to a defendant are subject to Rule B attachment.” 2008 U.S. App. LEXIS 20097 at p. *13 (emphasis in original). Although this suggests that the question remains open, prior Second Circuit cases have made clear that “EFTs to or from a party are attachable by a court as they pass through banks located in that court's jurisdiction." Aqua Stoli Shipping Ltd. v. Gardner Smith Pty Ltd., 460 F.3d 434, 436 (2d Cir. 2006) (citing Winter Storm, 310 F.2d at 263). Therefore, this footnote may pose somewhat of a puzzle for observers, but offers little hope to those who want future courts to hold that EFT payments from defendants are outside the scope of Rule B attachment suits.

While the Winter Storm rule will remain controversial, the Consub Delaware decision has made clear that this is the established law of the Second Circuit.  Since New York banks continue to play a prominent role in international business, those who may be involved in maritime claims should be aware of this rule and plan accordingly.

A link to the Second Circuit’s decision of Consub Delaware can be found here.

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The US Court of Appeals for the Ninth Circuit ruled that maintenance and cure payments are subject to withholding for child support, so long as those payments constitute income pursuant to applicable state law.  Specifically, the Court of Appeals affirmed the district court’s holding that state law controlled the issue and not maritime law, pursuant to 28 U.S.C. §1738B(h)(2). 

The court noted that seaman’s wages are subject to attachment for the support and maintenance of the spouse or minor children and could find no reasoned basis to distinguish between a seaman’s wages and a seaman’s maintenance and cure payments in this regard.  Aguilera v. F/V Alaska Juris, No. 07-35148 (9th Cir., August 4, 2008).

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Senator Cantwell introduced a bill (S. 3359) to amend the Internal Revenue Code of 1986 to repeal the shipping investment withdrawal rules in I.R.C. Section 955 and to provide an incentive to reinvest foreign shipping earnings in the United States.

A copy of the legislation is available at:  http://cantwell.senate.gov/issues/legislation.cfm

 

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The US Court of Appeals for the Fifth Circuit ruled that a maritime plaintiff is restricted to warranty remedies when a defective product damages only the product itself. In the instant case, plaintiff’s helicopter made an emergency landing in the Gulf of Mexico due to engine trouble.  The pilot and passenger escaped safety, but the helicopter inverted and was a total loss.  Evidence indicated that the problem was the result of a manufacturing defect on the part of the engine manufacturer.  The helicopter owner brought suit against the engine manufacturer and the helicopter manufacturer, alleging post-sale failure to warn of a pre-sale product defect.  The court held that, under US maritime jurisprudence, such economic loss, when not accompanied by damage to other property, is recoverable, if at all, only for breach of warranty.  Turbomeca, S.A. v. Era Helicopters LLC, No. 07-30885 (5th Cir., July 16, 2008).

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For the first time in U.S. jurisprudence, the Supreme Court Supreme Court has approved an award of punitive damages under maritime law.

The Supreme Court has established that as a general rule, punitive damages in general maritime law cases should be in the range of 0.65:1, with a maximum of 1:1. What will the impact be on other cases involving punitive damages and statutory causes of action under maritime law?

Interestingly, the Supreme Court was divided on the important issue of whether under maritime law, a ship owner may be vicariously liable for the acts of a managerial employee such as a vessel’s master. The Supreme Court’s opinion leaves the decision of the Ninth Circuit that there is such liability intact, but does not overrule contrary decisions in other circuits.

The Supreme Court's opinion may be read in full at:
http://www.supremecourtus.gov/opinions/07slipopinion.html

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The general rule, particularly as applied by courts in the Ninth Circuit, is that loss of use of a private pleasure boat is not a compensable item of damages under the General Maritime Law of the United States. The rule is predicated upon the unremarkable principle that one seeking damages must show an actual loss and a reasonable proof of the amount. The seminal case is The Conqueror, 166 U.S. 110, 17 S. Ct. 510, 41 L. Ed. 937 (1897).

Continue Reading...

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All areas of the law, have their own lingo and their own insider ‘speak’.   The following is a list, of common fisheries acronyms, more on what they mean later, in a different post. 

ABC—acceptable biological catch

ACL—annual catch limit

ACT—annual catch target

AM—accountability measures

CCF—capital construction fund

CFQ—community fishing quota

EEZ—Exclusive Economic Zone

FMP—fishery management plan

GRT—Gross registered tonnage

IBQ—individual bycatch quota

IFQ—individual fishing quota

IMO—International Maritime Organization

MARAD—US Department of Transportation, Maritime Administration

MSA—Magnuson-Stevens Act

MSRA—Magnuson-Stevens Fishery Conservation and Management Reauthorization Act

NOAA—US Department of Commerce, National Oceanic and Atmospheric Administration

OFL—Overfishing limit

QS—quota share

SFA—Sustainable Fisheries Act

TAC—total allowable catch

USCG—United States Coast Guard

VMS—vessel monitoring system

WTO—world trade organization

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On May 15, 2008, the Second Circuit Court of Appeals in New York heard oral argument in the case of Consub Del. LLC v. Schahin Engenharia Limitada, 476 F. Supp. 2d 305 (S.D.N.Y. 2007). The Consub v. Schahin case is significant to maritime companies and their attorneys because the court is being asked to overturn its controversial 2002 decision of Winter Storm Shipping v. TPI, which gave maritime creditors powerful new rights in maritime claims.

Under Supplemental Admiralty Rule B, anyone making an admiralty or maritime claim can file suit in any federal district in which the defendant has property, so long as the defendant is not located in the district. Upon the filing of a Rule B action, the court obtains jurisdiction over the defendant, and has the power to attach any property in the district, regardless of whether the parties or property have any connection with that district. This Rule B process can be used even if the parties are also litigating the claim in another court or in private arbitration.

In the Winter Storm case, the defendant was a Thai company being sued by a Maltese plaintiff for breach of a charter to carry oil from Saudi Arabia to Thailand. To secure its claim, the plaintiff brought a Rule B action in the Southern District of New York, seeking to attach all of the defendant’s property, including an Electronic Fund Transfer (EFT) payment routed from Thailand to Scotland through New York bank. Even though the defendant had no bank account in New York, there was no connection with New York and the transfer was totally unrelated, the Winter Storm court held that the transferred funds could be frozen to satisfy the claim. Finding that EFTs passing through New York constituted “property” under Rule B, the court held that payments either to or from the defendant could be attached. Therefore, any payments passing through any New York bank would be frozen until the full amount claimed was reached.

The Winter Storm case is particularly significant because of its location. Most EFTs of payments involving U.S. dollars are routed through intermediary banks in New York. This happens automatically and often without the knowledge of the parties. Transactions having no connection to New York—or to the United States—may still pass through New York banks and are therefore subject to Rule B attachment. Thus, any company doing international business or dealing with a New York bank is vulnerable to attachment of any funds in, or passing through, New York banks to satisfy any maritime claim anywhere in the world. Many companies and banks have complained of the expense, risk and inconvenience of this rule, and the creation of a “cottage industry” of international claimants suing in New York courts.

The controversy following Winter Storm has come to a head in the Consub v. Schahin case, in which the appellant has asked the appeals court to overturn its 2002 decision. In requesting that Winter Storm be abandoned, the appellant argues that a broad rule allowing attachment of all EFTs to or from a defendant is not supported by Rule B itself or by the case law upon which Winter Storm relied.

It is difficult to predict how the Second Circuit will rule on this case, but it is certain that the outcome will be of critical importance to any maritime companies doing international business. We hope to hear from the court in the next few months, so stay tuned.

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