During the past year, U.S. courts have addressed a number of issues with maritime significance, including the definitions of “seaman” and “vessel” under federal law and the standard for determining subject matter jurisdiction under the Act to Prevent Pollution from Ships. Also during the past year, U.S. agencies took measures affecting the short-term and long-term interests of stakeholders in the maritime sector, including redefining whether floating facilities on the Outer Continental Shelf qualify as “vessels” under applicable regulations.
At the international level, vessels facing sanctions for transacting with North Korea began engaging in schemes to avoid detection, and a high-profile cargo vessel carrying over 4,000 luxury cars sank to the bottom of the Atlantic. Beginning in late February, Russia’s invasion of Ukraine became the predominant global event, with all industries, including the maritime industry, experiencing significant and potentially long-term ramifications.
In Nederland Shipping Corp. v. United States, the U.S. Coast Guard detained the M/V Nederland Reefer (Nederland) in a Delaware port after finding evidence that the vessel had illegally discharged bilge water. Nederland subsequently entered into a contract with the U.S. government allowing for its release in exchange for a surety bond. Following the delivery of that bond, however, Nederland sat detained for another two weeks. During the detainment, the ship’s perishable cargo spoiled.
Nederland subsequently sought damages in connection with the detention in U.S. federal court. In response, the United States argued that the suit was barred for lack of subject matter jurisdiction. Specifically, the government argued that Nederland’s breach of contract claim did not “invoke the Court’s admiralty jurisdiction” and that the statutory cause of action in question, the Act to Prevent Pollution from Ships (APPS), failed because “the APPS did not waive the government’s sovereign immunity.” On appeal, the Third Circuit found that Nederland was able to prove both that “Congress provided for subject matter jurisdiction in the district courts over the claims at issue and that Congress waived sovereign immunity.”
First, the court determined that the contract between Nederland and the United States was maritime in nature and thereby invoked the district court’s admiralty jurisdiction. The court emphasized that a vessel did not need to be directly involved in a dispute for admiralty jurisdiction to attach. Instead, the court focused on a two factor test: (1) whether the contract at issue is maritime in nature, and (2) whether the contract deals with an inherently local dispute such that federal law should not apply. Because the main purpose of the surety contract at issue was to allow the Nederland to leave the Delaware port and pursue other maritime commerce, it satisfied the first prong. As to the second, the court found that the dispute was predicated on violations of the APPS, a federal law, and thus did not involve with an inherently local issue.
Second, the court determined that the APPS explicitly waived the government’s sovereign immunity. The court evaluated the plain text of the statute and concluded that “Congress provided ‘an explicit provision for money damages’ by allowing for ‘compensation for any loss’ caused by the Secretary [of Homeland Security]’s unreasonable detention of a ship.”
In In re: Southern Recycling LLC v. Aguilar, Southern Recycling purchased an articulated tug/barge unit (ATB), DBL 134, for shipbreaking and recycling. The ship was cleaned by Kirby Offshore Marine Operating, LLC (Kirby), a contractor, and delivered to the International Shipbreaking Limited, L.L.C. (ISL) shipyard in Texas. ISL, an affiliate of Southern Recycling, began shipbreaking activities, including removing pipes from a heating coil system in the cargo tanks. Nestor Aguilar and Jorge Loredo, two workers assigned to this task, were cutting a pipe that had been used to transport gasoline, when a spark ignited a pocket of gasoline vapors. The resulting explosion killed Loredo and severely injured Aguilar.
Aguilar and Loredo’s estate sued Southern Recycling in Texas state court. In response, Southern Recycling brought suit for limitation or exoneration under the Limitation of Liability Act (Limitation Act) (46 U.S.C. § 30501 et seq.). Under 47 U.S.C. § 30502, admiralty jurisdiction only attaches for the purposes of the Limitation Act when a “vessel” is at issue. Aguilar and Loredo’s estate argued that the court lacked subject matter jurisdiction to hear Southern Recycling’s limitation action because DBL 134 was a “dead ship” and not a “vessel” when the accident occurred. Southern Recycling countered that the ship was still floating in the shipyard when the accident occurred and thereby retained the requisite characteristics of a vessel. However, contemporaneous photographs of DBL 134 showed that it had “a gaping hole open to the sea down to or below the waterline.” Thus, the district court rejected Southern Recycling’s claim for want of subject matter jurisdiction.
On appeal, the Fifth Circuit first considered the Supreme Court’s definition of a vessel, based on the definition in 1 U.S.C. § 3, stating that “[t]he word ‘vessel’ includes every description of watercraft or other artificial contrivance used, or capable of being used, as a means of transportation on water.” The court further observed that the intent to dismantle a ship is insufficient to “render it a dead ship.” Rather, “[w]hether a vessel has been withdrawn from navigation is a question of the physical characteristics of a modifications to the structure.”
According to the Fifth Court, DBL 134 was a vessel when it arrived at the ISL shipyard. After its arrival and prior to the accident, however, “a large portion of the bow ha[d] been severed cleanly off the front . . . [that] visibly extends to well below the fully loaded waterline.” In dismissing Southern Recycling’s argument that the ship was floating at the time of the accident, the court emphasized that a “structure is not a vessel merely because it is ‘capable of floating, moving under tow, and incidentally carrying even a fair-sized item.’” Here, because “Southern Recycling [] failed to identify any transportation purpose that DBL 134 could serve or anything it could carry over water,” the court held that a reasonable observer would “not see a vessel ready to transport persons or cargo, but a dead ship in the process of being scrapped.”
Then, in Sanchez v. Smart Fabricators of Texas, the Fifth Circuit addressed the scope of an injured worker’s status as a “seaman” under the Jones Act. The plaintiff, Gilbert Sanchez, was a welder who worked on two short-term repair jobs on two vessels. His employer, Smart Fabricators of Texas (Smart Fab) was a welding firm that operated on land and occasionally on jack-up drilling barges. Enterprise Offshore Drilling LLC (Enterprise) contracted Smart Fab to work on two jack-up drilling rigs: the Enterprise 350 and the Enterprise 263.
For seventy-two percent of Sanchez’s total work for SmartFab, he conducted welding activities on a vessel that was located at Gabby’s Dock in Sabine Pass, Texas. He commuted home from the vessel during that time. For nineteen percent of his time, he was dispatched to the Enterprise 263, which was located in the Gulf of Mexico on the Outer Continental Shelf. While aboard the Enterprise 263, Sanchez fell and sustained an injury. Following the accident, Sanchez sued SmartFab under the Jones Act in state court. SmartFab removed the case, and Sanchez moved to remand on the grounds that the Jones Act precludes removal. The district court denied Sanchez’s motion, concluding that Sanchez did not qualify as a “seaman” under the Jones Act.
On appeal, the Fifth Circuit reviewed de novo the issue of whether Sanchez was a seaman under the Jones Act and, therefore, entitled to its benefits. In doing so, the Fifth Circuit considered three Supreme Court precedents defining the term “seaman”: McDermott International, Inc. v. Wilander, Chandris, Inc. v. Latsis, and Harbor Tug & Barge Co. v. Papai. Wilander held that a seaman must have an “employment-related connection to a vessel in navigation.” Chandris required a seaman to have “a substantial, enduring relationship to a vessel” and rejected the notion that “only the situation as it exists at the instance of injury” determines seaman status. The substantial-connection test established in Chandris requires both “duration and nature” and states that “[a] worker who spends less than about 30 percent of his time in the service of a vessel in navigation should not qualify as a seaman under the Jones Act.” Finally, Papai involved an analogous case where an individual who worked on a vessel as a painter entirely “located dockside” and did not engage in any seagoing activity did not qualify for seaman status.
In analyzing Sanchez’s status, the Fifth Circuit introduced the following additional inquiries: (1) whether the worker owes his allegiance to the vessel, as opposed to a shore-side employer; (2) whether the work involves seagoing activity; and (3) whether the worker’s assignment (a) is limited to a discrete task on these vessels after which the worker’s connection to the vessel ends, or (b) includes sailing with the vessel from port to port or location to location. After evaluating these inquiries, the court affirmed the district court’s ruling in favor of SmartFab, concluding that workers such as Sanchez who have only a “‘transitory or sporadic’ connection to a vessel or group of vessels” do not qualify as seamen under the Jones Act.
In Global Marine Exploration Inc. v. France,the Eleventh Circuit revived a fight over a sixteenth-century French shipwreck found off the Florida coast, concluding that the French government cannot evade the jurisdiction of U.S. courts because it engaged in commercial activity in recovering the remnants from the wreck. The dispute arose after Global Marine’s discovery in 2015 of La Trinité while contracted with the State of Florida to conduct salvage activities. La Trinité was the flagship of the 1565 fleet of the Royal Navy of France when it was sent to reinforce the French Huguenot settlement of Fort Caroline near present-day Jacksonville. While en route, a hurricane wrecked the vessel. The event is seen as a major contributor to the Spanish capture of the fort and the end of French settlement in Florida.
Global Marine informed the state of La Trinité’s whereabouts under its contract and said that it expected to work on the salvage. Unbeknownst to Global Marine, however, Florida was also working with the French government to retrieve the vessel, including through contracts with other companies. Global Marine alleged that this side arrangement deprived it of its intellectual property that it had attained through the discovery of the exact coordinates of the ship, as well as the fruits of its investments leading up to the discovery.
Accordingly, Global Marine brought an in rem action against the vessel, which yielded an initial order determining that the ship was the sovereign property of France. Global Marine then sued France itself, arguing unjust enrichment, misappropriation of trade secrets, and interference with its rights. France moved to dismiss the complaint on the grounds that it was immune from suit in the United States under the Foreign Sovereign Immunities Act (FSIA). The district court agreed with France, finding that the FSIA’s commercial activity exception did not apply.
On appeal, the Eleventh Circuit reversed and remanded. The court concluded that, while the French government was arguably engaging in some activity that only a foreign sovereign would conduct—such as maintaining relationships with the state of Florida and recovering its naval property—those actions did not preclude France from also engaging in commercial activity in the process. By negotiating and entering into private contracts to recover the ship, the French had relinquished their immunity. Criticizing the district court’s “purpose-oriented analysis,” the Eleventh Circuit emphasized that the purpose of the foreign government’s activities is of little import when evaluating whether an exception exists under FSIA; what matters is the actual action taken and whether a private entity might engage in that conduct.
A U.S.–based research group, the Center for Advanced Defense Studies (C4ADS), released a report in early September 2021 cautioning that smugglers are creating fraudulent identities for ships to evade North Korean sanctions. The phenomenon, which C4ADS has calls “vessel identity laundering operations,” occurs when a sanctioned vessel takes on a different identity on Automatic Identification System (AIS) transmissions to arrogate the identities of clean, non-smuggling ships.
To accomplish these schemes, the operators of vessels first must physically modify the vessel to hide its original identity, making it appear as a new ship. The vessel operators then defraud the International Maritime Organization (IMO) into issuing a new IMO number for that vessel via fake documents and subsequently using that shell identity in the AIS system. Overall, C4ADS has identified at least eleven instances of ships attempting such identity laundering schemes in recent years. In addition to identifying and explaining these recent developments, the C4ADS report also sheds light on ways in which law enforcement and civil regulators may combat the problem, including by utilizing tracking data, satellite imagery, IMO registration records, and other publicly available information.
On February 10, 2022, the U.S. Coast Guard (U.S.C.G.) issued updated guidance to aid authorities in determining whether a floating facility on the Outer Continental Shelf qualifies as a “vessel” under applicable U.S. law. Under 1 U.S.C. § 3, the term “vessel” is defined broadly as capturing every form of watercraft and artificial contrivance used, or capable of being used, as a means of transportation on water. In Lozman v. City of Riviera Beach, Florida, the Supreme Court held that, under 1 U.S.C. § 3, a vessel is defined by both the structure’s physical characteristics and its activities, such that a reasonable observer would “conclude that the structure was designed to a practical degree to carry ‘people or things’ on the water.” The structure’s capability to be used as a means of transport over water is key to this analysis. Therefore, in keeping with Lozman, the new U.S.C.G. guidance provides that when “determin[ing] if an FOF is a vessel, OCMIs [Officers in Charge, Marine Inspection] must decide whether a particular [Floating Outer Continental Shelf Facility (FOF)] was designed to a practical degree for carrying people or things over the water.”
U.S.C.G. provides the following non-exhaustive or dispositive factors to assist OCMIs when conducting this evaluation: (1) whether the FOF has a mode of self-propulsion, steering mechanisms, navigation equipment, dynamic positioning equipment, or operating station; (2) whether the FOF has a traditional hull; (3) whether the FOF was meant to be towed into place and “securely and substantially’” moored to the seabed for a long period of time; and (4) whether it takes substantial monetary investment and a long lead time to move the FOF from its anchored position or is capable of emergency disconnect allowing the FOF to float free or be underway.
On February 16, 2022, the Felicity Ace, a 650-foot-long specialist cargo ship carrying more than 4,000 Volkswagen AG luxury cars, including Porsche, Audi, Bentley, and Lamborghini models, caught fire near the Azores in the Atlantic Ocean. The ship was travelling from Emden, Germany, where Volkswagen has a factory, to Davisville, Rhode Island. The vessel’s twenty-two crew members were safely evacuated, but the fire continued to burn for nearly a week.
Because there were no evident oil leaks when firefighting tugboats arrived, it was not apparent what was keeping the fire consistent for so long. However, the firefighters soon determined that the fire was being fueled by lithium-ion batteries and other combustible materials in various electric vehicles on board. Because extinguishing lithium-ion battery fires can take thousands of gallons of water—much more than what it would take to douse a typical combustion engine fire—it made the endeavor significantly more precarious and time-consuming. Ultimately, those efforts proved futile. On March 1, 2022, as the vessel was being towed 250 miles off the coast of the Azores, rough waters eventually caused the ship to sink, along with all of its luxury vehicles. Estimates put the total loss of goods close to US $438 million, with losses of at least US$155 million for Volkswagen, which owns Porsche, Audi, Bentley, and Lamborghini.
As is well known, in late February 2022, the Russia Federation commenced its invasion of Ukraine. As of the date of this report, there is no indication of a cease fire. While the initial focus of the Russian action had been on efforts to take major Ukrainian cities, and when that failed, to take and occupy the Luhansk and Donbas provinces in eastern Ukraine, there have been significant maritime effects.
Insurers have declared the Black Sea, especially near Crimea and the Ukrainian Black Sea ports, to be a war zone. As a result, rates for hull and cargo insurance, if available at all, have risen dramatically, and most ships are avoiding the area. That situation has also caused ships already in the area to become stranded, raising risks to crew and cargoes already loaded. Potential buyers were refusing to load or buy cargoes of Russian oil, even before the United States and other countries imposed import restrictions. Turkey has restricted the transit of Russian naval vessels through the Bosporus Strait, the only access from the Black Sea to the Mediterranean.
As a result of the effective closure of Ukrainian Black Sea ports, shipments of Ukrainian exports, particularly grain, have halted, creating significant disruptions in world grain markets. As a direct result of sanctions imposed on Russian oligarchs, several countries have seized yachts or other vessels alleged to belong to the sanctioned oligarchs. Generally, such seizures freeze use of the vessel: it is restricted to port, cannot depart, or otherwise be used, but does not change ownership. Because the seizure is a physical event, unlike “arrests” of vessels to obtain jurisdiction for contract or other claims, the vessel cannot substitute a cash amount or bond for the vessel.
