Admiralty - Robert S. Glenn, Jr., Colin A. Mcrae, and Jessica L. Mcclellan

• Publication year: 2006

Admiraltyby Robert S. Glenn, Jr.^* Colin A. McRae^** and Jessica L. McClellan^***

I. Introduction

The Eleventh Circuit Court of Appeals handed down eight published opinions during the 2005 calendar year that dealt distinctively with admiralty issues. The cases represented a broad spectrum of traditional maritime issues, as the court issued opinions on such varied topics as salvage, admiralty practice and procedure, limitation of liability, the Longshore and Harbor Workers' Compensation Act, marine insurance, the Vessel Hull Design Protection Act, and the doctrine of forum non conveniens. With this diverse range of topics covered in its 2005 opinions, the Eleventh Circuit remains one of this country's most important admiralty circuits.

II. Salvage-Attorney Fees

In Offshore Marine Towing, Inc. v. MR23,¹ the Eleventh Circuit, held (1) attorney fees could not be awarded in an in rem action to enforce a salvage lien,² and (2) the district court acted within its authority under the Federal Arbitration Act³ in modifying the arbitration award to disallow attorney fees.⁴

In that case, a luxury motor yacht, the M/V MR23 ("MR23"), grounded in the Bahamas. The plaintifftowing company, offshore Marine Towing ("OMT"), responded to the call for assistance. Upon arrival, OMT presented the owner of the yacht with a signed by the owner. The contract called for arbitration of all disputes regarding fees or charges. The contract did not contain any provisions regarding the in personam jurisdiction of the yacht owner. A dispute over the amount of the salvage charges arose in Florida, where the boat was towed.⁵

OMT filed suit in the United States District Court for the Southern District of Florida and sought to arrest the MR23 as security for its salvage lien.⁶ The district court, which had admiralty and maritime jurisdiction pursuant to 28 U.S.C. Sec. 1333,⁷ issued an arrest warrant in rem for the MR23.⁸ Pursuant to the terms of the salvage contract, the district court ordered the parties to submit the dispute to arbitration. The arbitrator issued an award in favor of OMT in the amount of $15,852.50 plus interest for salvage and $29,314.82 for attorney fees and expenses.⁹ "The arbitrator noted [in the award] that it was not clear whether the issue of attorney fees had been submitted to arbitration, but stated 'if it was not the intention of the court for the issue of fees and costs to be a subject of this award, it can certainly so state and handle those issues as it sees fit.'"¹⁰ OMT moved for confirmation of the award, and the owner of MR23 moved to vacate the award with regard to the attorney fees and expenses. The district court ruled that "attorney[] fees could not be awarded in an in rem action and that the issue of attorney[] fees had not been submitted to the arbitrator."¹¹

On appeal, the Eleventh Circuit held that, under 9 U.S.C. Sec. 11(b),¹² "the district court cannot compel arbitration on an issue not before it."¹³ According to the court, the value of the salvage lien was the only issue before the district court, so the issue of attorney fees could not have been submitted to the arbitrator.¹⁴ On the issue of attorney fees, the Eleventh Circuit noted that, with very few exceptions,¹⁵ attorney fees are generally not awarded in admiralty cases.¹⁶

Relying on its earlier decision in Bradford Marine, Inc. v. M/V Sea Falcon,¹⁷ the Eleventh Circuit ruled that attorney fees could not be collected in an in rem action to enforce a maritime lien, and that the in rem suit is limited to the value of the lien itself.¹⁸ OMT unsuccessfully argued that Bradford was distinguishable because it was an in rem action for necessaries, while this case was an in rem action for sal-vage.¹⁹ After analyzing the factors for calculation of a salvage award set forth in The Blackwall,²⁰ the Eleventh Circuit determined that attorney fees were not a part of the value of the lien itself because attorney fees do not arise until the enforcement of the salvage lien.²¹ Finally, the court noted that while OMT cited several cases where attorney fees were awarded, none of those cases awarded attorney fees against the vessel.²²

III. ADMIRALTY PRACTICE AND PROCEDURE

In Sweet Pea Marine, Ltd. v. APJ Marine, Inc.,²³ the Eleventh Circuit considered cross-appeals concerning procedural questions.²⁴ Sweet Pea Marine ("Sweet Pea") and APJ Marine ("APJ") entered into an oral contract for the refurbishment of Sweet Pea's luxury yacht. Sweet Pea sued in federal court, based on diversity jurisdiction, alleging breach of oral contract, negligent misrepresentation, fraud in the inducement, breach of an oral express warranty, and breach of fiduciary duties. APJ responded with an in personam breach of contract claim against Sweet Pea and an in rem maritime lien claim against the yacht, based on admiralty jurisdiction.²⁵

The district court consolidated the claims for discovery purposes but allowed the claims to proceed on different dockets because of the different jurisdictional bases.²⁶ At trial on Sweet Pea's diversity action, the jury found for Sweet Pea on its breach of warranty claim.²⁷ On appeal, APJ argued that the district court lacked subject matter jurisdiction because the parties were not completely diverse.²⁸ The Eleventh Circuit noted that it was undisputed that the amount in controversy requirement of $75,000 was met; that Sweet Pea was a Cayman Islands corporation; and that APJ was a Florida corporation.²⁹ However, APJ argued that Sweet Pea's principal place of business was also in Florida, which would divest the court of diversity jurisdiction.³⁰ Noting that the burden for establishing subject matter jurisdiction rests with the party bringing the claim,³¹ the Eleventh Circuit reviewed the district court's determination of subject matter jurisdiction de novo.³²

The Eleventh Circuit ultimately held that the district court's determination that Sweet Pea's principal place of business was not in Florida was not clearly erroneous.³³ There was sufficient evidence that Sweet Pea's principal place of business was either in the Cayman Islands or Colorado.³⁴ The court held that since "neither Sweet Pea nor the Vessel had any other regular contacts with Florida either before the contract with APJ was executed or after it was terminated," diversity jurisdiction was appropriate.³⁵

On APJ's claims, the district court allowed the same jury to hear the evidence and give an advisory opinion, but because jurisdiction was based on admiralty, the trial court would make the ultimate findings of fact.³⁶ The jury found that APJ was entitled to damages on its maritime claims.³⁷ Because the jury found against Sweet Pea on its contract-related claims, the district court concluded that res judicata did not preclude the court from reaching APJ's maritime contract claims.³⁸ After finding that APJ was entitled under an oral contract to a mark-up on goods and materials supplied to the vessel, the district court awarded APJ $244,689.31 in damages and imposed a maritime lien on the M/V SWEET PEA in the same amount.³⁹

The Eleventh Circuit noted that for recovery on a breach of oral contract claim under admiralty jurisdiction, APJ had to prove (1) the terms of the contract, (2) that a breach had occurred, and (3) "the reasonable value of the purported damages."⁴⁰ Sweet Pea argued that the final element was not met, and therefore, the imposition of damages was improper.⁴¹ The court noted that there was little case law regarding the reasonableness element, but cited to opinions that measured reasonableness of charges as "customary"⁴² and "in accord with prevailing charges for the work done and the materials furnished."⁴³ First, APJ argued that Sweet Pea waived its chance to contest reasonableness because it had agreed to a mark-up on the materials. The court, however, ruled that agreeing to a mark-up had no relevance to the reasonableness of the actual prices of the goods and materials.⁴⁴

Second, APJ argued that the testimony at trial showed that it had proven the reasonableness of the charges.⁴⁵ However, the court determined that there was neither direct nor indirect evidence that could have gone to the reasonableness of the charges.⁴⁶ Additionally, the court noted that the elements of the claim for a maritime lien included a "reasonable price" requirement.⁴⁷ Because the reasonableness requirement was not met, both the award of damages and the imposition of a maritime lien were deemed "clearly erroneous" by the Eleventh Circuit.⁴⁸

In Transamerica Leasing, Inc. v. Institute of London Underwriters,⁴⁹ the Eleventh Circuit examined an action brought by the lessor of shipping containers against the lessee's ocean marine insurers to recover for a disappearance of containers.⁵⁰ The appeal brought the case before the Eleventh Circuit for the second time.⁵¹ After remand from the first appeal, the Eleventh Circuit directed the trial court to instruct the jury regarding whether the lessor was an additional insured, a loss payee, or both.⁵² After the jury found that the lessor was a loss payee, the lessee's marine insurers moved for judgment as a matter of law, and argued that under English law, a loss payee does not have standing to sue on a contract. The district court agreed and granted the motion.⁵³ Transamerica appealed the district court's decision, arguing that:

1) [T]he district court was prohibited from considering the standing issue based on the law of the case doctrine and the mandate rule; 2) Underwriters waived the standing issue; 3) Underwriters should be judicially estopped from arguing that Transamerica cannot recover under the contract because it is a loss payee; and 4) the district court erred in excluding certain evidence.⁵⁴

Transamerica's main argument on appeal was that the district court was prohibited from considering the standing question because of the law of the case doctrine and the mandate rule.⁵⁵ After examining both rules, the Eleventh Circuit concluded that...