Admiralty - Thomas S. Rue

• Publication year: 1996

Admiraltyby Thomas S. Rue^*

The Court of Appeals for the Eleventh Circuit decided eight admiralty cases with written opinions in 1995. Five of the decided cases involved issues of first impression. One case considered whether appellate review may be exercised over a stay order favoring arbitration after the stayed action is dismissed for failure to arbitrate as ordered. Two cargo cases dealt with issues of first impression. One case involved two issues of first impression: whether the carrier's failure to deliver the goods on a sight draft basis constituted a misdelivery and whether a misdelivery amounted to a deviation causing the loss of the defenses provided by the Carriage of Goods by Sea Act. The second cargo case addressed whether the carrier can invoke the fire defense of the Carriage of Goods by Sea Act and the Fire Statute without first demonstrating that it had acted with due diligence in providing a seaworthy vessel. A longshore case involved the applicability of the anti-assignment provision of the Longshore and Harbor Workers' Compensation Act to an assignment of annuity payments made to secure a bank loan. The final case of first impression involved a seaman and whether or not his unearned wages included tips he would have earned aboard a cruise ship as a cabin steward. The remaining three cases did not change the law as it exists in this circuit.

I. Appellate Jurisdiction

The Eleventh Circuit decided three cases involving issues of appellate jurisdiction. Two of those cases are reviewed here, and the third, Bradford Marine, Inc. v. Ml V SEA FALCON,¹ is reviewed in the section dealing with maritime liens since that was the principal issue in that case.

The most important of those decisions is Morewitz v. West of England Ship Owners Mutual Protection & Indemnity Ass'n (Luxembourg),² in which the court of appeals faced issues of appellate jurisdiction and waiver of a right to arbitration. The saga of that case, which has been to the Eleventh Circuit three times, began on December 13, 1975 when the M/V IMBROS, laden with cargo, departed Mobile for Quebec, Canada.³ Three days later the crew notified the vessel's managing agent of a leak in the salt water cooling system for the main engine gears. Five days into the voyage the crew broadcast an SOS from waters in the Bermuda Triangle. The vessel disappeared at sea without a trace.⁴

The M/V IMBROS was owned by Imbros Shipping Company, Ltd. and managed by General Development & Shipping Enterprises Company, Ltd.⁵ The club, West of England Ship Owners Mutual Protection and Indemnity Association (Luxembourg), had issued a maritime protection and indemnity policy covering the vessel. Imbros Shipping Co., Ltd. was a named insured; General Development was not.⁶ One of the risks insured against was "the loss of life of any person onboard an insured vessel."⁷ Rule 64 of the club provided for the arbitration of any dispute arising between an owner and the club.⁸

Morewitz brought wrongful death actions on behalf of seven of the deceased crew members against the owner and manager. The owner was dismissed for lack of personal jurisdiction.⁹ The club appointed counsel to defend the action both before and after the dismissal of the owner. Morewitz attempted to establish that the manager was responsible for the vessel at the time of its disappearance by propounding interrogatories to the manager. When the manager refused to respond, the district court imposed sanctions by declaring the manager to be the owner pro hac vice of the vessel at the time of the loss.¹⁰ Ultimately the district court determined that the M/V IMBROS was inadequately manned and therefore unseaworthy when it disappeared.¹¹ The district court held that the manager was liable for the deaths of the crew members and entered judgment in their favor on April 3, 1980.¹² The judgment was summarily affirmed by the Court of Appeals for the Fourth Circuit.¹³

During the course of the litigation the manager became insolvent and defunct. When the judgment remained unpaid, Morewitz registered the Virginia judgment in the United States District Court for the Southern District of Alabama and sought to enforce the judgment and recover on the marine protection and indemnity policy issued by the club. In order to do so, Morewitz filed the present suit to enforce the judgment on June 26, 1985. Morewitz based his suit on English bankruptcy statutes and a marine insurance contract.¹⁴ The club filed a motion to dismiss based on lack of subject matter jurisdiction. Finding that the suit was based on the English bankruptcy statutes, the district court dismissed for lack of subject matter jurisdiction.¹⁵ On Morewitz's first appeal the Eleventh Circuit reversed the district court, reasoning that "the subject matter of the suit is liability under a marine insurance policy, so the basis of [Morewitz's] case also is admiralty subject matter."¹⁶

On remand, Morewitz relied solely on the Alabama direct action statutes which "give a group of persons—those whose possible injury was the risk insured by the contract—direct standing to sue an insuror by putting them 'in the shoes' of the assured."¹⁷ The club then sought to enforce the arbitration provision pursuant to Section 3 of the Federal Arbitration Act (the Act) and filed a motion to stay the proceedings pending arbitration.¹⁸ The motion was granted by the district court.¹⁹

Morewitz filed a motion for reconsideration, arguing that the club had waived its right to compel arbitration. The district court denied Morewitz's motion, concluding that the club was not required to make a prelitigation demand for arbitration.²⁰ Morewitz then made his second appeal to the Eleventh Circuit, which was dismissed for lack of jurisdiction because Section 16 of the Federal Arbitration Act prohibits appeals from orders entered pursuant to Section 3 of the Act favoring arbitration.²¹

On remand, the district court ordered the parties to begin arbitration within six months.²² When the district court denied Morewitz's request to reconsider the stay order or to certify the question for immediate appeal, Morewitz intentionally refused to comply with the arbitration order.²³ As a result, the district court dismissed the case with prejudice for want of prosecution.²⁴ Morewitz appealed for the third time.²⁵

The threshold issue confronted by the Eleventh Circuit was whether or not it had jurisdiction to consider the appeal.²⁶ The issue arose in the context of whether a party whose action is stayed pending arbitration under Section 3 of the Act²⁷ must first arbitrate the dispute before obtaining appellate review of the stay order. The club argued that there was no jurisdiction because of the prohibition stated in Section 16 of the Act which provides "an appeal may not be taken from an interlocutory order . . . granting a stay of any action under section 3 of this title."²⁸ The club contended that because arbitration had never taken place due to Morewitz's refusal to arbitrate, the matter was not appealable. Section 3 of the Act gives credence to the club's position with language which states, "the court. . . shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement . . . ."²⁹ In other words, there is to be no judicial interference until arbitration is had.

In order to get around the express statutory prohibition, the court of appeals chose to view the dismissal with prejudice as a final judgment pursuant to 28 U.S.C. Sec. 1291, "a decision that ends the litigation on the merits and leaves nothing for the court to do but execute a judgment."³⁰ The court of appeals was unreceptive to the club's argument that the real issue was whether or not a party can thwart the express statutory language of section 16 of the Federal Arbitration Act (and a direct order from the district court) by refusing to arbitrate. According to the Eleventh Circuit, by intentionally refusing to arbitrate and suffering a dismissal with prejudice a party can obtain review of an order that is otherwise unreviewable.³¹ At the very least there seems to be a conflict between 28 U.S.C. Sec. 1291 and the Federal Arbitration Act which the Eleventh Circuit did not fully reconcile.³²

The Eleventh Circuit purported to support its opinion with its decision in State Establishment for Agricultural Product Trading v. M/V WESERMUNDE.³³ That case was a poor choice of authority since the decision preceded the 1988 amendments to the Federal Arbitration Act, specifically Section 16 which prohibits appeals of rulings under Sections 3 and 4.³⁴

The decision of the Eleventh Circuit permits a party who does not want to arbitrate to short circuit the prohibition of appeals in Section 16 by refusing to arbitrate and suffering a dismissal with prejudice. Although this procedure is not without risk (all is lost if the order to arbitrate is affirmed), it does provide a party with a means to circumvent the Federal Arbitration Act.

The Eleventh Circuit then addressed the conflict between the English bankruptcy and the Alabama direct action statutes.³⁵ In resolving the issue the Eleventh Circuit relied on the procedural versus substantive characterization.³⁶ The Eleventh Circuit characterized the Alabama direct action statutes as "procedural and therefore not subject to choice of law rules."³⁷ Thus, the court of appeals ruled that the Alabama statutes applied automatically as the procedure of the forum without engaging in any meaningful conflicts analysis.³⁸

The Eleventh Circuit then turned its attention to the arbitration provision in the contract of insurance, noting that under Alabama law the injured party steps into the shoes of the insured in any effort to collect against the insurance company.³⁹ According to the Eleventh Circuit, since arbitration is an affirmative defense that would have been available to the club in an action brought by the insured...