Challenging the Stay and Concursus There are three instances where a district court will abstain from exercising jurisdiction over a limitation action. The first instance is where there are multiple claimants but the limitation fund is adequate to pay all damages even if the shipowner is entitled to limitation. The second situation is where the limitation fund is inadequate for the claim presented but there is only one claimant in the proceeding. 141 This commonly is referred to as an “inadequate-fund single claimant” situation. As a general rule, the district court will lift the stay against a single claimant allowing that claimant to proceed in the forum of his own choosing, since there is no need for a concursus. 142 The single claimant exception is narrowly construed. For example, a claim for loss of consortium by a spouse is considered a separate and independent cause of action that creates a multiple claimant situation. 143 The third is where the limitation fund has multiple claims but the limitation fund is inadequate to reimburse all claimants for the full amount of their losses. 144 This is commonly referred to as an “adequate-fund multiple claimant” situation. 145 The purpose for the district court voluntarily relinquishing jurisdiction over a limitation claim stems from the tension between the shipowner’s right to have a district court adjudge limitation and the claimants’ right under the “savings to suitors” clause to proceed in a forum of their choice including state courts. 146 Accordingly, a claimant may proceed against a vessel owner in state court “if the necessary stipulations are provided to protect the rights of the shipowner under the Limitation Act.” 147
Multiple Claimants-Adequate-Fund In a multiple claimants adequate fund situation, there is enough money to pay for all claimants when the shipowner’s liability is limited under the Act. As such, the concursus is unnecessary because the claimants need not compete among themselves for larger portions of the limitation fund. Thus, the shipowner is not exposed to liability in excess of the limitation fund and his rights under the Limitation Act are not implicated. 148 Furthermore, the rights of the claimants to have a jury trial in the forum of their choosing will also be protected. 149
The Single-Claimant Inadequate Fund Exception Because the purpose of a concursus is to resolve competing claims to a limitation fund, a single claimant may be able to try liability and damages in another forum by filing stipulations that protect the shipowner’s right to have the admiralty court ultimately adjudicate its claim under the Limitation Act. 150 In a single claimant situation, the stipulation must fully protect the vessel owner's rights under the Limitation Act. 151 To achieve this the claimant must stipulate to certain conditions before the district court may lift the stay. First, the stipulations must protect the vessel owner’s right to litigate its claim to limited liability exclusively in the admiralty court. 152 Therefore, the claimant must agree to (1) waive any res judicata and issue preclusion defenses with respect to all matters reserved exclusively for determination by the admiralty court, (2) stipulate that collection on the judgment will not commence until the limitation proceedings are concluded, and (3) concede the limitation court’s exclusive jurisdiction to determine issues relative to limitation of liability. 153
The Multiple-Claims-Inadequate-Fund Exception Originally, courts did not allow multiple-claims-inadequate-fund situation to be tried outside the limitation proceedings because without the concursus, the claimants could secure judgments in the various courts which in aggregate could exceed the limitation fund. 154 In recent years, however, courts have allowed claimants to transform a multiple-claims-inadequate-fund case into the functional equivalent of a single-fund claim case through appropriate stipulations. 155 Such stipulations must: (1) waive any res judicata and issue preclusion defenses with respect to all matters reserved exclusively for determination by the admiralty court, (2) forbear that collection on the judgment will commence until the limitation proceedings are concluded, (3) concede the limitation court’s exclusive jurisdiction to determine issues relative to limitation of liability and (4) establish the priority of claims. 156 Furthermore, the stipulation must be signed by all potential claimants. 157 Another way to dissolve the stay and concursus order in a multiple-claiminadequate- fund situation is for the claimants to stipulate to the reduction of their claims to an amount less than the limitation fund. 158
Establishing Exoneration or Limitation of Liability
Burden of Proof A determination of whether a shipowner is entitled to limit his liability involves a two-step analysis. As stated in Farrell Lines, Inc. v. Jones, “[f]irst, the court must determine what acts of negligence or conditions of unseaworthiness caused the accident. 159 Second, the court must determine whether the shipowner had knowledge or privity of those same acts of negligence or conditions of unseaworthiness.” 160
The Initial Burden Lies with the Claimant The claimant carries the initial burden to prove that an act of negligence or condition of unseaworthiness caused the accident. 161
Exoneration from Liability Must be Given Should the Claimant not Prove an Unseaworthy Condition or Act of Negligence If the claimant cannot prove that an act of negligence or an unseaworthy condition caused the loss, the shipowner must be exonerated from liability. 162
Should the Claimant Prove Negligence or Unseaworthiness the burden then Shifts to the Petitioner to Prove Lack of Privity of Knowledge Once the claimant satisfies the initial burden of proving negligence or unseaworthiness, the burden of proof shifts to the shipowner to prove the lack of privity or knowledge. 163
Privity and Knowledge Section 183(a) provides that a shipowner is entitled to limit his liability for loss or damages which was incurred without his “privity or knowledge.” 164 As with many of its other sections, the Limitation Act does not define “privity or knowledge.” Judicial interpretation of this term has held that privity or knowledge means the shipowner’s personal participation in, or actual knowledge of, the specific acts of negligence or conditions or unseaworthiness which caused or contributed to the casualty. 165 Privity or knowledge has been applied in different ways depending upon whether the owner is an individual or corporation. 166
Individual Owner Privity or knowledge for an individual shipowner means the owner’s personal participation in the fault or negligence which caused or contributed to the loss or injury. 167 However, the mere fact that an owner was at the helm of the vessel during a casualty does not necessarily mean that he was in privity or knowledge of the casual act or negligence or unseaworthy condition. 168 Individual owners have been consistently found without privity or knowledge of the negligence acts of their agents or servants. 169 However, if the individual shipowner breaches his duty to hire competent agents to operate his vessel, and this breach is the proximate cause of the loss, then he will not be able to obtain limitation. 170 Further, if the individual owner failed in his duty of reasonable inspection in order to apprise himself of the conditions likely to produce or contribute to a loss and such conditions caused the loss, then limitation will not be unavailable. 171
Corporate Owner When examining privity or knowledge in the corporate owner context, one must determine whether the person with knowledge of the negligence or unseaworthy condition ranks high enough in the corporate structure to make his awareness that of the corporation. 172 For example shore-based corporate managers who oversee the vessel’s operations usually have sufficient ranking in the corporation to create privity or knowledge. 173 Captains and crewmembers, on the other hand, generally do not have a high enough position within a corporation to impute privity or knowledge to the vessel owner. 174 However, if the vessel’s master exerts almost exclusive control over the vessel’s business activities, he would be of a sufficient rank in the corporation to impute his knowledge to the corporation. 175 Furthermore, if the negligent act is one due to an incompetent crew, as opposed to the negligence of an otherwise competent crew, corporate owners are generally held to be in privity or knowledge. 176
Examples where Privity and Knowledge Were Found.
Negligent Entrustment of the Vessel If the shipowner entrusts his vessel to a person who is not qualified to operate the vessel, he will be found in privity and knowledge of the negligent acts of the unqualified operator. 177 However, if the owner is a corporation and the person who entrusted the vessel to an unqualified operator was a non-managerial employee, the corporate owner may be held without privity or knowledge. 178
Vessel Outfitted with Insufficient Navigation Equipment Several courts have determined that a shipowner has privity and knowledge of an unseaworthy condition by failing to provide the vessel with accurate charts and appropriate navigational equipment prior to the commencement of the voyage and the loss is attributed to a navigation error. 179
Inadequate Maintenance Procedures Privity and knowledge of an unseaworthy condition has been found where the shipowner failed to establish and institute adequate maintenance and repair procedures to assure that the vessel’s equipment was maintained in good operating condition. 180
Failing to Establish Procedures for Dealing with Adverse Weather Conditions Privity and knowledge of a negligent act have been found where a shipowner failed to implement procedures for shutting down operations during strong weather conditions and fog. 181
Failure to Provide a Competent Crew A shipowner’s failure to provide a competent crew has also been found to impute privity and knowledge to an unseaworthy condition. 182 Further, shipowners are obligated to establish procedures for various functions of their vessels. 183 However, shipowners need not establish procedures for every function of their vessels in order to have privity or knowledge of an unseaworthy condition. 184
Unseaworthy Condition at the Commencement of the Voyage Owners have been found within privity and knowledge of unseaworthy conditions which existed at the commencement of the voyage. 185
Distributing the Limitation Fund If the act of negligence or unseaworthy condition which caused the underlying loss was not within the shipowner’s privity or knowledge, the court must distribute the limitation fund to the affected claimant. If the claims together exceed the limitation fund, the court must provide for the distribution of the funds “pro rata subject to all relevant provisions of law, among the several claimants in proportion to the amounts of their respective claims, duly proved, saving, however, to all parties any priorities to which they may be legally entitled.” 186 The pro rata distribution includes all claims subject to limitation whether they be for personal injuries, death or property damage. 187 This is achieved simply by pro rating the value of each claim to the amount of the limitation fund. 188 Since admiralty courts are courts of equity, distribution of the limitation fund may be modified by the court. 189 There exist two methods used by the Courts to determine the pro rata distribution of the limitation fund: maritime lien priorities and equitable distribution. The first method is to rank and disburse the funds as a court would dispose any in rem claims against a libeled vessel. 190 This method calls for the payment of certain claims first and the pro ration of the remaining claims until the fund is exhausted. Other courts take an equitable subordination approach wherein the offending shipowner and subrogated insurer only participate in the disbursement of the limitation fund after the innocent personal injury and property damage claimants were paid. 191 Settlement of individual claims prior to trial should be debited against the limitation fund. 192 Debiting the settlement amount from the limitation fund affirms the spirit of the Limitation Act which purpose is to shield shipowners from liability greater than his post-loss interest in the vessel. 193 It is good practice, however, for the litigant to receive court approval of the settlement to insure that he will not pay more than the value of the vessel should he be entitled to limit his liability.
Pleading the Limitation Act as an Affirmative Defense Besides bringing an action in federal district court, a shipowner may plead the Limitation Act as an affirmative defense. 194 This may be accomplished if the underlying action was brought by the injured party in district or state court. It is important to note that the six month statute of limitations prescribed in section 185 does not apply in situations where the Limitation Act has been pled as an affirmative defense. Therefore, a shipowner may assert the Limitation Act as an affirmative defense to a claim at any time. 195 The assertion of the Limitation Act as an affirmative defense, however, does not vest the district court with jurisdiction to hear limitation issues nor does it toll the time for which a shipowner must bring an action pursuant to section 185. 196 Furthermore, the recent case of El Paso Prod. GOM, Inc. v. Smith held that pleading the Limitation Act as a defense to an in rem claim does not itself create a concursus of claims or operate to stay other actions pending against the vessel owner. 197 Instead, in order to receive these benefits the owner must comply with the requirements set forth in section 185. 198 More importantly, a split of authorities has developed concerning whether a state court or federal court sitting in diversity has jurisdiction to decide issues relative to limitation where the right to limit is raised by a defense and a section 185 as not timely filed. At least two (2) jurisdictions determined that a state court lacks jurisdiction to decide issues relative to limitation where the right to limit is raised by a defense and a section 185 has not been timely filed. 199 The Tennessee Supreme Court in Mapco Petroleum, Inc. v. Memphis Barge Line, Inc., on the other hand, held that the substantive right to limit can be determined by any court where shipowner elects to assert the Limitation Act as an affirmative defense as opposed to bringing a limitation proceeding pursuant to section 185. 200 The Mapco ruling appears better reasoned and has been followed by the majority of jurisdictions. 201 As this is still an unsettled area of law, however, the prudent course for the litigator is to file a complaint-in-limitation in federal district court within six months after receiving written notice.
Conclusion Throughout the past one hundred and fifty years the Limitation Act has been invoked tens of thousands of times by shipowners attempting to exonerate themselves or limit their liability for marine casualties. Given its great benefits, the Limitation Act has come under attack in recent years. Most courts now apply the Act strictly against the shipowner in preference of an injured party receiving full recovery of his damages. Though strictly applied, the Limitation Act remains a vital tool in the maritime litigator’s arsenal when defending a shipowner. If proper steps are taken and pitfalls avoided, the Limitation Act will, given the circumstances, exonerate or limit a vessel owner’s liability.
1Lake Tankers Corp. v. Henn, 354 U.S. 147; 77 S. Ct. 1269; 1 L. Ed. 2d 1246 (1957).
3The Titanic, 204 F. 295 (S.D. N.Y. 1912); Petition of Republic of France, 171 F. Supp. 497 (S.D. Tex. 1959), reversed sub nom, Republic of France v. United States, 290 F.2d 395 (5 th Cir. 1961); In re Complaint of Clearsky Shipping Corp., 1998 AMC 1981 (E.D. La. 1998).
4 Hercules Carriers, Inc. v. Claimant State of Florida, Dep't of Transportation, 768 F.2d 1558 (11th Cir. 1985).
5 46 U.S.C. § 183(a).
6 Flink v. Paladini, 279 U.S. 59; 49 S. Ct. 255; 73 L. Ed. 613 (1929).
7 Dick v. U.S., 671 F.2d 724 (2nd Cir. 1982); Admiral Towing Co. v. Woolen, 290 F.2d 641 (9th Cir. 1961).
8 Tomasson v. Whitwill, 12 Fed. 891, aff’d 118 U.S. 520 (1892).
9 In re Complaint of Sheen, 709 F.Supp. 1123 (S.D. Fla. 1989).
10 Stone v. Diamond Steamship Transportation Corp., 328 U.S. 853; 66 S.Ct. 1344; 90 L.Ed. 1626 (1946).
109 In re Weeks Marine, Inc., 2001 AMC 574 (M.D. Fla. 2000).
110 In re Waterman S.S., 794 F. Supp. 601 (E.D. La. 1992).
111 Sacramento Nav. Co. v. Salz, 273 U.S. 326, 47 S.Ct. 368, 71 L.Ed 663 (1927); Liverpool, Brazil & River Plate Steam Nav Co. v. Brooklyn Eastern District Terminal, 251 U.S. 48, 40 S.Ct. 66, 64 L.Ed. 130 (1919).
112 In re Paradise Holdings, Inc., 795 F.2d 756 (9th Cir. 1986); In re Red Star Barge Line, Inc., 683 F.2d 42 (2d Cir. 1982).
113 In re Hanjin Incheon, 1988 AMC 1230 (W.D. Wa. 1987); New York Marine Managers, Inc. v. Helena Marine Services, 758 F.2d 313 (8th Cir. 1986).
114 Guillot v. Cenac Towing Co., Inc., 366 F.2d 898 (5th Cir. 1966); Pettus v. Jones & Laughlin Steel Co., 322 F.Supp. 1078 (W.D. Pa. 1971).
115 O’Brien v. Miller, 168 U.S. 287 (1897); Guillot v. Cenac Towing Co., 366 F.2d 898 (5th Cir. 1966); Phillips v. Clyde S.S. Co., 17 F.2d 250 (4th Cir. 1927).
116 46 U.S.C. § 183(f).
117 In re Talbott Big Foot, Inc., 854 F.2d 758 (5th Cir. 1988).
118 The Boundary Line is that line which divides the high seas from rivers, harbors, and inland waters. 33 U.S.C. § 151.
178 In re Norfolk Dredging Co., 2004 AMC 227 (E.D. N.C. 2003).
179 In the Matter of Texaco, Inc., 570 F. Supp. 1272 (E.D. La. 1983); TT Boat Corp., 1999 AMC 2776 (E.D. La. 1999).
180 In re Amoco Cadiz, 1984 AMC 2133 (N.D. Ill. 1984).
181 Furka v. Great Lakes Dredge & Dock Co., 1984 AMC 349 (D. Md. 1983); Penzoil Producing Co. v. Offshore Express, Inc., 943 F.2d 1465 (5th Cir. 1991); Hogge v. S.S. Yorkmar, 434 F. Supp. 715 (D. Md. 1977).
182 Hercules Carriers, Inc. v. Florida, 768 F.2d 1558 (11th Cir. 1985); Empire Seafoods, Inc. v. Anderson, 398 F.2d 204 (5th Cir. 1968).
183 Spencer Kellogg & Son v. Hicks, 285 U.S. 502, 52 S. Ct. 450, 76 L. Ed. 903 (1932).
184 Farrell Lines, Inc. v. Jones, 530 F.2d 7 (5th Cir. 1976).
185 Villers Seafood Co., Inc. v. Vest, 813 F.2d 339 (11th Cir. 1987).
186 Fed.R.Civ.P.Supp. F(8).
187 Butler v. Boston & S. S.S. Co. 130 U.S. 527, 9 S.Ct. 612, 32 L.Ed. 1017 (1889).
188 The Hamilton, 207 U.S. 398, 28 S.Ct. 133, 52 L.Ed. 264 (1907); Oliver J. Olson & Co. v. American S.S. Marine Leopard, 356 F.2d 728 (9th Cir. 1966).
189 Hartford Accident & Indemnity Co. v. Southern Pacific Co., 273 U.S. 207, 47 S.Ct. 357, 71 L.Ed. 612 (1927).
190 American Cyanamid Co. v. China Union Lines, Ltd., 306 F.2d 135 (5th Cir. 1962).
191 In re A.C. Dodge, Inc., 282 F.2d 86 2d Cir. 1960).
192 Kristie Leigh Enters. v. American Commercial Lines, Inc., 168 F.3d 206 (5th Cir. 1999).
194 Langnes v. Green, 282 U.S. 531, 51 S.Ct. 243, 75 L.Ed. 520 (1931).
195 Sana v. Hawaiian Cruises Ltd., 181 F.3d 1041 (9th Cir. 1999); Signal Oil & Gas Co. v. Barge W-701, 654 F.2d 1164 (5th Cir. 1981).
197 El Paso Prod. GOM, Inc. v. Smith, 406 F. Supp. 2d 671 (E.D. La. 2005).
199 Complaint of Bay View Charter Boats, Inc., 692 F. Supp. 1480 (E.D.N.Y. 1988); Hellweg v. Baja Boats, Inc., 818 F. Supp. 1022 (E.D. Mich. 1992).
200 Mapco Petroleum, Inc. v. Memphis Barge Line, Inc., 849 SW 2d 312 (Tn. 1993) cert. denied. 510 U.S. 815, 114 S. Ct. 64, 126 L. Ed. 2d 33 (1993).
201 Howell v. American Casualty Co., 691 So. 2d 715 (La.App. 4 Cir. 03/19/97); Grindle v. Fun Charters, Inc., 962 F.Supp. 1284 (D. Haw. 1996); In re Complaint of North Lubec Mfg. & Canning Co., 640 F. Supp. 636 (D. Me. 1986).
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