RECENT
DEVELOPMENTS IN THE COURTS - PART XIV
(Published March 2008)
The following survey represents some of the more significant recent court rulings around the nation affecting shipping lines generally:
Control of Vessel by Bankruptcy Trustee Not Equivalent of Judicial Custody for Purpose of “Trumping” Crew Wage Lien
Admiral Cruise Services, Inc. v. M/V ST. TROPEZ, 2007 WL 4324817 (S.D. Fla. 2007)
Facts:
The vessel at issue in this case was owned by Florida Entertainment LLC (“Florida”). Florida declared bankruptcy, and control of the vessel was transferred to a bankruptcy trustee (“Trustee”). The Trustee retained the crew of the vessel, and continued to operate the vessel. While the vessel was under the control of the Trustee, it was arrested, and sold shortly thereafter. Numerous intervenors asserted liens against the vessel, including the primary lienholder, Admiral Cruise Services, Inc. (“Admiral”). Ultimately, an agreement was reached over distribution of the proceeds of the vessel sale, covering all lienholders except the crew. The vessel’s crew asserted a lien against the vessel for unpaid tips earned while the vessel was under the control of the Trustee, but before it was arrested. In Admiral’s motion for summary judgment, Admiral contended that the tip/wage lien of the crew was a matter to be processed through the bankruptcy estate, not as a lien against the vessel/proceeds of the sale of the vessel. The crew contended that its tip/wage lien was independent of the bankruptcy proceedings and was, instead, appropriately asserted against the vessel itself and the proceeds of the vessel sale.
Holding:
The court denied Admiral’s motion. The court concluded that the tip/wage lien asserted by the crew did not fall within the long-established rule holding “no lien attaches to a vessel while she is in judicial custody,” a rule which typically “trumps” a seaman’s otherwise “sacred” claim for wages. According to the court, control of the vessel by the Trustee was akin to a change in vessel management -- the Trustee retained the crew of the vessel and continued to operate the vessel prior to the vessel’s arrest, and, as a result, stepped into the shoes of the vessel’s owner, Florida. The court declined to equate the Trustee’s control and continued operation of the vessel as the equivalent of “judicial custody” of the vessel. As a result, the court held, the crew’s maritime lien for wages attached to the vessel as if the vessel were still under the control of Florida.
Outcome:
The court granted summary judgment in favor of the crew, confirming the validity of the crew’s maritime lien against the proceeds of the sale of the vessel.
Arbitration Provision in POEA Employment Contract Upheld in Crewmember Class Action Claim for Penalty Wages
Balen v. Holland America Line, Inc., Case No. C07-645RSM, 2007 U.S. Dist. LEXIS 88544 (W.D. Wash. 2007); on appeal, Case No. 07-36011 (9th Cir.)
Facts:
Plaintiff, a Filipino crewmember employed aboard a foreign vessel brought a class action suit for penalty wages under the Seaman’s Wage Act, challenging the line’s practice of requiring crewmembers to reimburse their employer for deployment costs. The cruise line modified the collective bargaining agreement with the Filipino seamen’s union by instituting a Gratuity and Beverage Plan requiring passengers to pay gratuities that were distributed to certain shipboard hotel and beverage personnel and providing these crewmembers with an opportunity to significantly increase their wages. In return, employees participating in the plan were required to reimburse the cruise line for various transportation expenses. Plaintiff signed an acknowledgment accepting the terms of the Gratuity Plan, as well as the Philippine government- approved Filipino Standard Terms and Conditions Governing the Employment of Filipino Seafarers on Board Ocean Going Vessels (“Standard Terms”). The Standard Terms include a mandatory arbitration provision requiring all disputes arising from the employment between parties covered by a collective bargaining agreement be submitted to arbitration in the Philippines. Defendant filed a motion to compel arbitration and to dismiss the action pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“The Convention”). Plaintiff argued that under the mandatory jurisdiction provision of the Seaman’s Wage Act, 46 U.S.C. § 10313, arbitration of crew wage claims is prohibited.
Holding:
The court found that all four prerequisites for the enforcement of foreign arbitration agreements under The Convention, including 1) a written agreement to arbitrate, 2) in the territory of a signatory to the convention, 3) an agreement arising out of a commercial legal relationship, and 4) one of the parties to the agreement is not an American citizen, were met. In following the reasoning of the Fifth and Eleventh Circuits in Francisco v. Stolt Achievement MT, 293 F.3d 270 (5th Cir. 2002) and Bautisa v. Star Cruises, 396 F.3d 1289 (11th Cir. 2005), the court rejected plaintiff’s argument that seamen employment contracts are non-commercial. The court also rejected plaintiff’s novel contention that the arbitration provision is void under 46 U.S.C. § 10317 which prohibits stipulations by which a seaman consents to abandon a right to wages, as that statute by its own clear terms does not apply to foreign vessels. Finally, the court followed the precedent set by the Eleventh Circuit in Lobo v. Celebrity Cruises Inc., 488 F.3d 891 (11th Cir. 2007) in rejecting plaintiff’s argument that arbitration of seaman wage claims is prohibited under the reasoning of U.S. Bulk Carriers v. Arguelles, 400 U.S. 351 (1971). The court found, as was reasoned in Lobo, that the Arguelles court did not consider the Convention which was implemented after the case was argued. The court further noted that in ratifying The Convention, Congress explicitly agreed to recognize agreements to submit to arbitration and to read industry-specific exceptions into the broad language of The Convention Act would hinder its purpose. The court thus concluded that Arguelles does not preclude arbitration of foreign seamen wage claims under The Convention.
Outcome:
Defendant’s motion to compel arbitration and dismiss the complaint was granted. Plaintiff appealed the decision to the Ninth Circuit Court. A similar issue, pertaining to enforcement of seamen arbitration agreements in wage claims, is currently before the Ninth Circuit in the case of Rogers and Kar v. Royal Caribbean, 2007 U.S. Dist. LEXIS 89088 (C.D. Cal. 2007), 9th Cir. Case No. 07-55071, which has been fully briefed but has not yet been set for oral argument.
Forum Selection Clause in Seaman’s Employment Contract Not Unenforceable Pursuant to Shipowner’s Liability Convention of 1936
Calix-Chacon v. Global International Marine, Inc., 493 F.3d 507 (5th Cir. 2007)
Facts:
Plaintiff, a native of Honduras, was hired to work aboard defendant’s vessel, pursuant to an employment contract which contained a choice of law provision specifying the application of Honduran law to disputes arising out of the employment agreement, and a forum selection clause requiring any claim arising out of the employment agreement, or for injury sustained during employment, to be brought exclusively in Honduras. While plaintiff was engaged as a crewmember aboard defendant’s vessel, he was diagnosed with an inflamed gall bladder. He underwent gall bladder surgery, and was subsequently diagnosed with an enlarged heart. An immediate heart transplant was recommended. Defendant paid for plaintiff’s gall bladder surgery, but refused to pay for the heart transplant. Plaintiff filed suit, seeking maintenance and cure including the cost of a heart transplant. In response, defendant moved to dismiss plaintiff’s complaint, asking the court to enforce the forum selection clause in the employment contract. Defendant’s motion was denied by the district court, which concluded that the United States’ adoption of the Shipowners’ Liability Convention of 1936 (the “Convention”), and the Convention’s pronouncements regarding the respect with which the right to maintenance and cure is to be treated, rendered the forum selection clause in plaintiff’s employment contract – which, if enforced, would prevent plaintiff from litigating his right to maintenance and cure in a U.S. court – unreasonable by definition. Defendant appealed the district court’s denial of its motion. While the appeal was pending, plaintiff underwent successful heart transplant surgery.
Holding:
The Court of Appeals held the forum selection clause in plaintiff’s employment contract was not rendered unenforceable solely by virtue of the existence, and the United States’ adoption, of the Convention. The Court of Appeals reiterated the “controlling weight” given to forum selection clauses in all but the “most exceptional cases,” and noted that, on remand, the burden rested with plaintiff to demonstrate the unreasonableness (and, therefore, unenforceability) of the forum selection clause.
Outcome:
The Court of Appeals vacated the district court’s order denying defendant’s motion to dismiss, and remanded the case to the district court for further consideration of the alleged unreasonableness of the forum selection clause.
Limitation of Liability Language Not Reasonably Communicated to Passenger
Dinklage v. Holland America Line-Westours Inc., 2007 WL 951844 (W.D. Wash. 2007)
Facts:
Plaintiff alleged he was injured during a cruise aboard defendant’s ship as the result of the negligence of defendant. Prior to his departure, plaintiff received a booklet of travel documents, several of which included limitation of liability clauses. Defendant sought to have said limitation of liability clauses enforced. Plaintiff argued that the limitation of liability language was unenforceable because it was not “reasonably communicated” to him – an argument which required the court to apply two- part analysis developed in the Ninth Circuit. Specifically, the court examined (a) the physical characteristics of the ticket, and (b) the circumstances surrounding the ticket’s purchase and retention by the passenger.
Holding:
The court first examined the physical characteristics of the travel documents. Concluding that, on balance, the documents failed to provide plaintiff with adequate notice of the liability limitation, the court pointed out that the heading of the paragraph within which the limiting language was “buried” read: “Governing Law; Transferability; Separability.” The court contrasted this heading, unfavorably, with headings examined in other Ninth Circuit cases, which read: “Limitations on Carrier’s Liability; Indemnification.” The absence of any words such as “limitation” or “liability” in the heading, combined with the limiting language’s presence in a paragraph otherwise dedicated to the assertion by the cruise line of its entitlement to coverage under the Convention Relating to the Carriage of Passengers and Their Luggage by Sea (the “Athens Convention”), led the court to its conclusion in plaintiff’s favor with respect to the first part of the Ninth Circuit’s “reasonable communication” test.
The second part of the test confirmed the court’s ultimate conclusion – that the limitation of liability was not reasonably communicated to plaintiff. First, the court noted that a contract which merely states that the Athens Convention applies to an anticipated voyage, without specifying precisely what liability limitations applicable to the cruise line are codified in said convention, places an inappropriate burden on a passenger: “The significant amount of legal and financial sophistication customers would need in order to decipher the contract’s terms [make] it unlikely that a passenger would undertake the effort to become informed of his or her legal rights.” To understand this language, customers would need to look up the Athens Convention, research its amendments, find the liability limitation, cross-reference the limitation with the definitions section of the Convention and consult with a financial entity to convert the limitation language of the Convention (liability limited to “46,666 units of account per carriage”) into an understandable currency valuation. In the court’s view, this was an unreasonable burden to place upon a prospective passenger.
Next, the court highlighted defendant’s use of “hedging” language in the paragraph at issue: while the paragraph initially asserted defendant’s right to the protections embodied in the Athens Convention, it went on to state, in part, “[o]therwise, this contract and its interpretation shall . . . be governed by and construed in accordance with the general maritime law of the United States.” The court took a dim view of this language, stating: “It is hard to read the word ‘otherwise’ as anything but an indication that the Athens Convention might not apply.” The “hedging” language, according to the court, “provide[d] yet another disincentive for the passenger to research the contours of whatever the limits of the Athens Convention, with its 46,666 Special Drawing Rights, may impose.”
Outcome:
The court denied the motion for partial summary judgment brought by defendant, holding the limitation of liability was not reasonably communicated to plaintiff.
Court Declines to Identify Defendant as “Prevailing Party” for Purpose of Attorneys’ Fees When Judgment Granted Based on Running of Statute of Limitations
Edwards v. Princess Cruise Lines, Ltd., 471 F.Supp.2d 1032 (N.D. Cal. 2007)**
Facts:
Plaintiff passenger brought an action against defendant cruise line, alleging violations of the Americans with Disabilities Act (“ADA”) and the California Disabled Persons Act (“CDPA”). Summary judgment was granted in favor of defendant, and plaintiff’s motion for relief from the judgment was denied. Defendant subsequently sought to recover its attorneys’ fees incurred in defending the action, pursuant to the “prevailing party” provisions of the ADA (found at Section 12205 of the ADA) and/or pursuant to Section 55 of the California Civil Code. The ADA permits recovery of attorneys’ fees by a prevailing party only where the plaintiff’s action is “frivolous, unreasonable, or without foundation.” California Civil Code Section 55 permits an “aggrieved” plaintiff to seek injunctive relief and provides that “the prevailing party in the action shall be entitled to recover reasonable attorneys fees”.
Holding:
The court declined to identify defendant as a “prevailing party” under either the ADA or the California Civil Code. The court noted that defendant’s motion for summary judgment was granted based on the running of the applicable statute of limitations; as a result, the merits of plaintiff’s claims were never reached. Further, the court found no evidence that plaintiff filed her ADA/CDPA claims in bad faith, or without a reasonable basis in law or fact to assert her claims. Additionally, the court noted that granting defendant’s request for attorneys’ fees would be inconsistent with the policy objective otherwise supporting fee awards in civil rights cases, namely, that of advancing the “policy objectives of the Civil Rights Statutes.”
With regard to California Civil Code Section 55, the court declined to label defendant as the “prevailing party,” relying on the same reasoning it had applied with respect to defendant’s claim under the ADA.
Outcome:
The court denied defendant’s motion for attorneys’ fees. Plaintiff has appealed the summary judgment motion and defendant has appealed the denial of attorneys’ fees under California’s CDPA.
Forum Selection Clause Requiring Passenger Suit be Filed in Federal District Court Held Enforceable
Leslie v. Carnival Corp., et al, 2008 Fla. App. LEXIS 9 (Fl. 3rd DCA 2008)
Facts:
Plaintiff passengers allegedly injured on board a cruise ship filed suit against defendant cruise line in Florida state court. Cruise line sought dismissal of suit based on forum selection clause in passengers’ tickets which required suits arising out of the passengers’ participation in the cruise to be filed in the United States District Court for the Southern District of Florida. Passengers argued the forum selection clause effectively stripped them of their right to a jury trial, as their suit could only properly be brought on the admiralty side of the U.S. District Court, where jury trials are not a matter of right. The Florida state trial court granted the cruise line’s motion to dismiss, concluding the cruise line’s forum selection clause was enforceable. Passengers appealed the trial court’s decision to the Court of Appeal of Florida, Third District.
Holding:
The appellate court first noted that form forum selection clauses found in the tickets provided to passengers embarking on cruises are prima facie valid and enforceable, and further noted that the passengers did not contest that the forum selection clause at issue had been “reasonably communicated” to them as required by federal law. The sole question remaining on appeal was whether or not the forum selection clause at issue unlawfully “federalized” passenger personal injury actions. Though the appellate court acknowledged some degree of “disruption to traditional maritime policy” posed by the cruise line’s federal forum selection requirements, it concluded the forum selection clause did not “short-change” passengers by requiring them to litigate their personal injury actions in a federal, as opposed to state, forum.
Outcome:
The trial court’s order dismissing plaintiffs’ suit was affirmed.
Doctrine of uberrimae fidei Applies to Applicants for Policies of Marine Insurance, Including Vessel Pollution Policies
Certain Underwriters at Lloyds, London v. Inlet Fisheries, Inc., 2008 WL 351688 (9th Cir. 2008)
Facts:
Insurer sought declaration from the court that a vessel pollution insurance policy issued to the owner of several fishing vessels was void under the doctrine of uberrimae fidei, which, according to the insurer, imposed upon the vessel owner a duty of utmost good faith, and a responsibility to fully and voluntarily disclose to the insurer all facts material to the risk being covered, even if the application for insurance did not specifically request particular types of material information. Vessel owner did not disclose in its application prior pollution incidents involving its vessels, and further did not disclose, though the application did not request that it do so, the poor condition of its vessels, its poor financial condition and the fact that its previous policy was being cancelled. One of vessel owner’s vessels was subsequently involved in a pollution incident, and made a claim on its policy with insurer. Insurer investigated the pollution incident and vessel owner itself, and discovered both the prior, unreported pollution incidents and the prior, unreported poor condition of the vessels/poor financial condition of the vessel owner. The district court found the doctrine of uberrimae fidei entitled insurer to void the policy and granted summary judgment. The vessel owner appealed, arguing that uberrimae fidei is not a part of established federal maritime law, and not properly applied to a policy of vessel pollution insurance.
Holding:
On appeal, the Ninth Circuit rejected vessel owner’s argument and concluded that the doctrine of uberrimae fidei is an established part of federal maritime law, consistently referenced and applied over the span of 200 years of maritime precedent, and a single contra decision out of the Fifth Circuit notwithstanding. The Ninth Circuit next concluded that the vessel pollution insurance policy at issue was properly characterized as a policy of marine insurance. Finally, the Ninth Circuit examined the course of dealing between the insurer and the vessel owner, and concluded that the vessel owner had a duty, while applying for the policy of vessel pollution insurance at issue, to disclose to the insurer those facts which would have been material to the insurer’s decision whether or not to accept the risk of coverage: the poor condition of the vessel owner’s boats, the vessel owner’s pending bankruptcy and the fact that the vessel owner’s prior insurer was in the process of cancelling its policy.
Outcome:
The Ninth Circuit affirmed the district court’s summary judgment in favor of the insurer.
Ferry Passenger Barred From Bringing Her Service Animal Into Ferry’s Lounge Area Cannot Recover Damages Under ADA
Lockett v. Catalina Channel Exp., Inc., 496 F.3d 1061 (9th Cir. 2007)
Facts:
Blind passenger on ferry between Long Beach and Catalina Island filed suit against ferry operator, alleging violations of the Americans with Disabilities Act (“ADA”). Plaintiff who relied upon a guide dog, was prevented from purchasing a ticket for a seat in a lounge area on the ferry which had previously been designated a “pet dander-free” area by the ferry operator in response to requests from other passengers. Ferry operator had no lounge area seating available for the passenger’s use with her guide dog. On cross-motions for summary judgment by both plaintiff and defendant, the district court granted judgment in favor of the ferry operator, holding it had provided plaintiff with appropriate “different and separate accommodations” by selling her a seat in the general passenger area. The district court also concluded defendant had properly considered the health and safety concerns of those passengers who had previously requested “dander-free” seating when it refused to permit plaintiff’s guide dog to enter the ferry lounge area. Plaintiff appealed.
Holding:
On appeal, the district court’s conclusion that defendant had complied with the ADA’s requirement that “separate arrangements” be made for those disabled persons who might otherwise properly be barred from utilizing particular types of accommodations. The appellate court noted the ADA permits the provider of covered accommodations to make available (1) separate arrangements or facilities, (2) necessary for the disabled person, (3) which are “as effective as” that for which the arrangements/facilities are being offered as a substitute. The ferry operator, in directing plaintiff to general seating when she was willing and able to pay the premium charged by the ferry operator for seating in the private lounge area, could not bring itself within the coverage of the “separate arrangements” provision of the ADA.
Despite the above analysis, the appellate court ultimately decided that the district court’s entry of judgment in favor of defendant was properly affirmed. The appellate court noted defendant, considering plaintiff’s request to bring a guide dog into a designated dander-free area, was required to make a judgment-call: should it permit a service animal access to the lounge area, thereby ensuring the equal accessibility of the ferry to all persons as required by the ADA, but possibly endangering those passengers with dander allergies whose health and safety would be adversely impacted by the guide dog? The court concluded defendant was entitled to weigh the competing interests at stake, and could not be held liable for a reasonable decision made on a matter that was, essentially, one of first impression for the ferry operator.
The appellate court took great pains to note, however, that its holding was very narrow: its conclusion that the ferry operator could not be held liable under the ADA for its refusal to sell this particular passenger a seat in its lounge area on this particular occasion did not immunize the ferry operator from liability under the ADA should it continue not to provide appropriate “separate arrangements” for persons assisted by service dogs and seeking lounge area seating, in the future.
Outcome:
The decision of the district court, granting summary judgment in favor of the ferry operator, was affirmed.
Charterer’s Duty to Warn Identical in Scope to That Owed by Vessel Owner to Longshoreman
Robinson v. Orient Marine Co., Ltd., 505 F.3d 364 (5th Cir. 2007)
Facts:
Plaintiff longshoreman sued vessel owner and charterer for injuries he allegedly sustained during the unloading in Louisiana of the chartered vessel; crates of plywood had been loaded on the vessel in an unstable manner while the vessel was docked in Indonesia. Plaintiff sought to recover compensation for his injuries pursuant to the Longshore and Harbor Workers’ Compensation Act (“LHWCA”). The district court granted summary judgment in favor of vessel owner, holding the manner in which the crates were stacked did not constitute a “latent hazard,” about which the vessel owner would have had a duty to warn the longshoremen engaged in unloading the vessel.
The district court denied the charterer’s motion for summary judgment, concluding that, while a charterer typically assumes those duties otherwise owed by the vessel owner, the charter contract in this case added to the charterer’s duties in a manner which required a warning to the longshoreman. Specifically, the district court relied on a provision in the charter agreement which read, “[C]harterers are to perform all cargo handling at their risk and expense.” The charterer appealed the district court’s decision.
Holding:
On appeal, the district court’s reliance on the risk-shifting language of the charter contract was rejected. The appellate court agreed that the charter contract in effect transferred the duties otherwise owed by the vessel owner vis a vis the cargo handling process to the charterer. However, the appellate court pointed out that, since the vessel owner did not owe the longshoreman a duty to warn him about the improperly stacked crates, no such duty could be transferred from the vessel owner to the vessel charterer. The appellate court concluded that the legal duties owed to the longshoreman by both the vessel owner and the charterer should have been analyzed identically, and, had they been analyzed identically, both entities should have been granted summary judgment.
Outcome:
The district court’s denial of summary judgment in favor of the charterer was reversed and the matter remanded to the district court.