Know Your Limitations – Recent Jurisprudence Under The Limitation Of Liability Act

Despite perennial complaints from lower and appellate courts that the Limitation of Liability Act (“LLA,” 46 U.S.C. §§30501 et seq.) is “now hopelessly anachronistic” (Cont’l Oil Co. v. Bonanza Corp., 706 F.2d 1365, 1376 (5th Cir. 1983) and that “such a law no longer makes sense” Delta Country Ventures, Inc. v. Magana, 986 F.2d 1260, 1266–67 (9th Cir. 1993), the LLA continues to be a powerful procedural and (when successfully invoked) substantive tool for shipowners. This is despite the fact that virtually every high profile maritime casualty (at least as to limitable personal injury/property claims, as opposed to non-limitable pollution issues) raises public controversy and calls for legislative repeal/restrictions of the century-and-a-half old  “relic of the clipper ship era in which it was launched”[1]  – from the sinking of the TITANIC all the way to the DEEPWATER HORIZON disaster (which prompted an eventually abandoned bill to repeal the LLA), the tragic loss of the EL FARO and the recent catastrophic duckboat incident in Missouri that killed 17.

As a brief overview, a shipowner’s claim for limitation under the LLA involves a two-step inquiry: “[f]irst, the party seeking to [avoid] limitation must establish that the vessel was negligent or unseaworthy, and those acts caused the accident[;] [t]hen the burden shifts to the owner of the vessel to prove that negligence was not within the owner’s privity or knowledge.” Cont’l Ins. Co. v. L&L Marine Transportation Inc., 2017 WL 4844272, at *3 (E.D. La. Oct. 26, 2017) (citations omitted). Thus, the two inquiries for limitation revolve around (1) operational negligence or fault that is (2) within the “privity and knowledge” of the vessel’s ownership/management. As to privity and knowledge” this includes not only the owner’s actual knowledge, but also constructive knowledge – i.e. “what it could discover if it conducted a reasonable investigation sufficient to apprise itself of conditions likely to produce or contribute to a loss.” Hercules Carriers, Inc. v. Claimant State of Fla., Dep’t of Transp., 768 F.2d 1558, 1564 (11th Cir. 1985).

As the recent jurisprudence discussed in this post shows, despite the uniquely maritime two-step process for limitation, proceedings under the LLA still encompass all of the typical and critical minutia of civil litigation, including evidentiary considerations, regulatory compliance concerns and intricacies of civil procedure.

Holzauer v. Golden Gate Bridge Hwy. & Transp. Dist., 2018 WL 3801208 (9th Cir. Aug. 10, 2018); — Fed. Appx. —

Holzauer involved a collision between a speedboat and a passenger ferry (owned/ operated by the Golden Gate Bridge Highway and Transportation District (“Golden Gate”) that the killed the driver of the speedboat and seriously injured his passenger. The widow of the deceased and the injured passenger sued Golden Gate, which in turned filed a petition for limitation under the LLA. The negligence claims of the widow/passenger were tried to a jury, with the limitation issues decided by the Court (consistent with the general practice of bifurcating the proceedings so that a jury determines fault and damages for negligence with respect to a plaintiff’s claims for which jury rights are protected by the saving-to-suitors clause of the Constitution’s grant of admiralty jurisdiction; and the federal judge determines without a jury the owner’s right to exoneration/ limitation and the quantum of such limitation. See, e.g., In re the Matter of Marquette Transp. Co. Gulf-Inland, LLC, , 2014 WL 6389978, at *4–5 (E.D. La. Nov. 13, 2014)).

The jury awarded the two claimants $5,276,306, with 70% of fault for the collision allocated to the driver and 30% to the ferry captain.

The district court in turn denied Golden Gate’s limitation claim under the two-step analysis, resulting in Golden Gate’s liability for 30% of the ~$5.2 million judgment.

  1. First, the court found the ferry captain was operationally negligent based on his ultimate admission that he had been using his personal cell phone to make an “operations” call at the time of the collision. This finding derived from a critical evidentiary ruling allowing admission of an interview summary generated as part of the Coast Guard’s investigation file for the collision. Specifically, the captain testified at trial that he had made the “operations” call; but had stated during his post-collision Coast Guard interview (as reflected in the summary) that he had not made “any cell phone calls or texts during the transit when the collision happened.” In the end, the evidence showed that the captain was on his phone at 4:07 PM for two minutes, and the accident occurred at 4:09 PM.
  2. The district court initially denied a motion in limine by Golden Gate to exclude the summary, based in part on the fact that Golden Gate’s own liability expert had reviewed and relied on the summary in his report; and then ultimately admitted the summary at trial for impeachment of the captain. In these evidentiary rulings, the district court held that the statutory prohibition against admission of “[any] part” of a Coast Guard “report of a marine casualty investigation … including findings of fact, opinions, recommendations, deliberations or conclusionsdid not apply. 46 U.S.C. §6308; see also 46 C.F.R. §4.07-1 (providing that Coast Guard “investigations …and determinations… are not intended to fix civil… responsibility”). Additionally, the court held that the summary fell under the public records exception to the hearsay rule, because it had been generated by the Coast Guard pursuant to its statutory authority to investigate the collision; and likewise was a non-hearsay statement of a party opponent.
  3. Second, the court found that Golden Gate had constructive “privity and knowledge” of the captain’s negligence because it knew ferry captains carried personal cell phones and had no company policy regarding their use.First, on the evidentiary issue, the Ninth Circuit held that the §6308 prohibition did not apply to the summary because the summary was not “part of a report” regarding the collision, and likewise was not part of any report’s “findings of fact, opinions, recommendations, deliberations, or conclusions” of the Coast Guard. The court relied in this conclusion on the Eastern District of Louisiana’s ruling in In Re Danos & Curole Marine Contractors, Inc., 278 F Supp. 2d 783 (E.D. La. 2003), in which the court held that photographs in the Coast Guard’s investigative file were not excluded from evidence by §6308.
  4. Second, the Ninth Circuit agreed with the district court that Golden Gate’s failure to have any personal cell phone policy, combined with knowledge that its ferry captains carried personal cell phones on the vessel, constituted “privity and knowledge” sufficient to break limitation:
  5. Golden Gate appealed denial of limitation and claimed the district court’s allegedly improper admission of the summary irredeemably tainted the proceedings. The Ninth Circuit, however, rejected both arguments.

[The captain] was on his personal cell phone at 4:07 p.m. for two minutes, and the accident occurred at 4:09 p.m. [Golden Gate] did not have a policy against the use of personal cell phones, and allowed its ferryboat operators to carry personal cell phones. Those facts are sufficient to establish knowledge. It was not clear error for the district court to find that [the captain’s] cell phone use contributed to his distraction while moving the ferry, and that Golden Gate Bridge’s lack of a policy against cell phone use and ability to discover with “reasonable investigation” that ferry operators used their cellphone while operating the ferry gave it constructive knowledge that negligence could occur.

Holzenhauer is the first appellate-level decision in a recent line of limitation cases from across the country that have denied limitation under the LLA based on a shipowner’s failure to have a cell phone policy. Vessels owners should take heed of this trend, and institute not only cell phone policies in their safety management systems, but also (with the increasing advance of automated and “smart”/semi-autonomous systems in the wheelhouse) for all potentially distracting technology that operators may have access to on the bridge. See, e.g., Matter of Petition of Fire Island Ferries, Inc., 2018 WL 718396 (E.D.N.Y. Feb. 5, 2018) (denying limitation and finding “privity and knowledge” based on captain’s distracted texting at the time of a collision, and the inadequacy of the owner’s “oral omnibus no distraction policy [with respect] to the cell phone problem, particularly its texting component [as was the] proposition that a cell phone, is just another ‘tool’ in the ‘wheelhouse,’ like ‘radar …. GPS or the radio ….”).

Shell Offshore, Inc. v. Tesla Offshore, LLC, 905 F. 3d 915 (5th Cir. 2018)

The Fifth Circuit likewise recently affirmed denial of limitation on what was ultimately a very simple and straightforward basis – namely, the owner’s deploying an improperly licensed mariner – albeit in a very unique and more-complicated-than-meets-the-eye factual scenario.

Shell Offshore involved a multi-party lawsuit ultimately arising out of an incident in which a sonar towfish was accidentally dragged into, and severed, one of the mooring lines of Shell’s semi-submersible drilling rig in the Gulf of Mexico, causing a shutdown of drilling operations for several days and resulting in millions of dollars of property and consequential damages. The towfish – a 7 1/2 foot long torpedo-shaped object – was being dragged on a 14,000 cable behind a vessel (M/V THUNDER) owned by International at the time of the incident. Tesla (the owner of the towfish who had been contracted to conduct the survey underway at the time) undisputedly knew about the location of the Shell rig’s mooring lines, but failed to pass the information on to International. However, the captain of the so-called “chase vessel” (i.e. the vessel that trailed the THUNDER to help ensure the survey grid was properly followed) had radioed the captain of the THUNDER to warn him about his proximity to the mooring lines.

International asserted a defense of limitation pursuant to the LLA. However, after a jury trial on Shell’s claims (which had been brought under the court’s diversity jurisdiction (not admiralty) thus preserving the right to a jury), the district court denied International’s limitation defense based on the jury’s finding that the captain of the THUNDER was not properly licensed (i.e. did not hold the proper Coast Guard “credential”), which constituted fault necessarily within International’s “privity and knowledge.”

On appeal, the Fifth Circuit affirmed, focusing on the lone issue of whether the THUNDER’s captain was improperly credentialed, which was itself dispositive of International’s “privity and knowledge” (because an improperly licensed captain constitutes a regulatory violation and thus a de facto instance of “privity and knowledge”). Specifically, International argued that the THUNDER was not engaged in “towing” at the time of the incident because the term “towing” is restricted to “traditional” towing of other vessels, not non-vessel objects like the towfish. International also argued that THUNDER was documented with the Coast Guard as an “offshore supply vessel” (under 46 C.F.R. Subchapter L) rather than a “towing vessel” (under 46 C.F.R. Subchapter M or C). For these reasons, International argued that the requirement of 46 U.S.C. §8904 for a “master of towing vessels” credential did not apply, and thus the district court’s denial of limitation was erroneous.

In a unique procedure, the Fifth Circuit invited the United States Solicitor General to submit an opinion on whether the dragging of the towfish constituted “towing” under the applicable statutes/regulations, and in turn rendered the THUNDER’s captain improperly credentialed. The Solicitor General answered in the affirmative, and the Fifth Circuit agreed, rejecting International’s arguments, including the argument that such an interpretation would render even fishing vessels “towing” vessels (to the extent they drag baited lines/nets):

The U.S. Code defines a “towing vessel” as “a commercial vessel engaged in or intending to engage in the service of pulling, pushing, or hauling alongside, or any combination of pulling, pushing, or hauling alongside.” 46 U.S.C. § 2101(50)… We interpret this language to exclude vessels that engage in some incidental pulling, pushing, or hauling activities as part of a distinct commercial endeavor. A fishing vessel that pulls nets or cages in furtherance of its fishing activities would not qualify as a towing vessel because it is in the business of fishing, not “in the service of pulling.”… [International’s “traditional” towing argument] has no basis in the statutory text, and we find little support for such a restrictive definition of towing. Current Coast Guard regulations define a tow as “the barge(s), vessel(s), or object(s) being pulled, pushed, or hauled alongside a towing vessel.” 46 C.F.R. § 136.110. This definition expressly contemplates that a towing vessel may tow objects other than vessels.

The court likewise rejected International’s vessel-documentation argument, noting that while the THUNDER was documented as an “offshore supply vessel,” this was non-determinative because “a vessel can fall into more than one statutory [documentation] category.” Ultimately, the court held that International’s policy-based arguments were fodder for legislative action, but not judicial relief, because the statute was clearly worded and thus applicable as written.

Shell Offshore emphasizes the importance of regulatory compliance for limitation purposes – even, and perhaps especially, in unique ad hoc circumstances outside of ordinary vessel operations that may trigger application of unfamiliar/non-intuitive regulatory provisions

SCF Waxler Marine v. M/V ARIS, 902 F.3d 461 (5th Cir. 2018 revised 10/30/18).

As a final note, the Fifth Circuit recently issued a procedurally important limitation decision in SCF Waxler Marine v. M/V ARIS, a case arising out of a collision on the Mississippi River between a bulk carrier, a tank vessel and two shoreside facilities, resulting in upwards of $60 million in damages. In the district court, the parties argued over whether one of the limiting vessel owner’s excess insurers were entitled to the protections of the LLA, which in turn hinged on whether those excess insurers had an enforceable and proper Crown-Zellerbach clause in their policy (i.e. a clause consistent with the Fifth Circuit’s Crown-Zellerbach decision that “allows the insurer to take advantage of the owner’s limitation of liability” Brister v. A.W.I., Inc., 946 F.2d 350, 359 (5th Cir. 1991) (citing Crown Zellerbach Corp. v. Ingram Industries, Inc., 783 F.2d 1296 (5th Cir.) (en banc)). The district court held that the insurers policy did include the necessary Crown-Zellerbach wording, and various claimants attempted an appeal.

The Fifth Circuit, however, rejected the appeal on procedural grounds as an interlocutory appeal from a non-final judgment; and, more specifically, not an appeal from an“[i]nterlocutory decre[e]…determining the rights and liabilities of the parties to admiralty cases” (as otherwise allowed under 28 U.S.C. 1292(a)(3)). Specifically, the excess insurers rights were finally determined but only contingent upon the ultimate ruling as to whether their insured/the vessel owner could limit under the LLA:

In this case, the court decided the boundaries of a party’s liability through determination of whether a contractual provision permitted them to do so. Whether [claimants] are legally permitted to recover anything from the Excess Insurers and, if so, how much remains to be determined. That question turns on the fault and or liability of the [vessel].

The court went on to distinguish other cases where interlocutory appeals under §1293(a)(3) were allowed after an insurer’s total potential liability in a limitation proceeding was definitively established (Gabarick v. Laurin Maritime (America), Inc., 649 F.3d 417, 420–21 (5th Cir. 2011); and where a party’s right to limitation has been definitively denied (Republic of France v. United States, 290 F.2d 395, 397 (5th Cir. 1961). In this case, however, “[s]tated simply, where the district court answers the question of whether a party may, under a contractual provision, limit his liability should the liability question be determined in his or his insured’s favor, we will not exercise jurisdiction.”

As this set of recent decisions exemplifies, a shipowner’s potential right to limit under the LLA is a robust substantive and procedural tool. However, the shoals on which an LLA claim can founder are myriad and varied, requiring the utmost diligence of vessel owners (and their counsel) to protect this powerful right. Likewise, these decisions emphasize the trend in modern limitation jurisprudence to focus on an owner’s safety management procedures and regulatory compliance that may have potentially avoided the operational negligence causing a casualty.

[1] Craig H. Allen, The Future of Maritime Law in the Federal Courts: A Faculty Colloquium, 31 J. Mar. L. & Com. 263, 263 (2000)