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Top Seven Considerations for Mediating a Maritime Dispute

David Yita Loh

Summary

  • Federal maritime common law, known as "the general maritime law of the United States," applies to certain admiralty and maritime disputes, alongside state contract and tort law.
  • The decision between using federal maritime law or state law depends on whether an established maritime rule or statute exists for the specific case.
  • The choice between federal and state court can impact the strategy, especially considering the jurisdiction's familiarity with maritime disputes and the availability of a jury trial.
Top Seven Considerations for Mediating a Maritime Dispute
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Admiralty and maritime law are the only areas of law specifically referenced in the U.S. Constitution, in Article III, section 2. Today, there is no distinction between the two, but when the Constitution was written, it was still the age of sailing and the use of privateers was common. A privateer was a private individual who was granted a government or royal commission during wartime to use any means necessary to capture vessels flying the enemy flag. The captured vessel and its contents would be registered with a court in admiralty, and anyone with a claim to that property would be required to file against that property. Any unencumbered property would be sold at auction and the proceeds distributed by the court. Courts in admiralty would hear other types of what were then known as “blue water” disputes. “Brown water” disputes—such as disputes involving barges, piers, and the like—would be considered “maritime” matters.

With that bit of history under our belt, let’s discuss some of the most important considerations in mediating an admiralty or maritime dispute. 

1. What Law Applies?

Although many principles of state contract and tort law apply to this area of the law, there has also been a substantial development of federal common law that applies to certain kinds of admiralty and maritime-related disputes. This federal common law is generally referred to as “the general maritime law of the United States.” How do parties know when to apply state law or maritime federal common law?

The U.S. Supreme Court tried to answer this question in Wilburn Boat Co. v. Fireman’s Fund Insurance Co., 348 U.S. 310 (1955), an insurance dispute that concerned whether a marine insurance warranty should be strictly applied. Wilburn Boat is still good law today and is generally considered to stand for the proposition that if there is an established maritime rule or statute, then the maritime rule should apply. If there is no such established rule, then state law should apply.

For example, there is the Oregon Rule, which is based on an 1895 Supreme Court decision that involved a steamship called the Oregon. That case stands for the principle that when a moving object hits a stationary object, the owner of the moving object is presumed to be at fault. There is also the Pennsylvania Rule, which is based on an 1873 Supreme Court decision that involved a steamship named the Pennsylvania. That case stands for the principle that the owner of a vessel that fails to comply with a maritime safety statute or regulation (for example, the failure to post a lookout when there is reduced visibility) has the burden of establishing that this violation did not cause or contribute to the casualty.

On the other hand, if there is no established maritime rule, then state law generally applies. In some instances, the parties—especially in insurance coverage disputes—will rely on a mixture of federal common law and state law, depending on the specific wording of certain clauses or language in the insurance contract, and whether an argument can be made that there is an “established” maritime rule.

A clever attorney may be able to find some benefit from the application of a certain federal maritime rule, especially if it is contrary to state law, so the issue to be decided may be whether that maritime rule is sufficiently established to take precedence over state law. The determination of which law applies may be dispositive of the overall dispute.

2. Jurisdiction—and Can State and Federal Claims Both Be Pursued?

It is beyond the scope of this article to explain the nuances of admiralty and maritime jurisdiction, but it should be noted that not all maritime disputes are removable to federal court. The reason for this is found in the wording of 28 U.S.C. § 1333, which states:

The district court shall have original jurisdiction, exclusive of the courts of the States, of:

(1)   Any civil case of admiralty and maritime jurisdiction, saving to suitors in all cases all other remedies to which they are otherwise entitled.

(2)   Any prize brought into the United States and all proceedings for the condemnation of property taken as prize.

(Emphasis added.)

There is a lot of case law interpreting the meaning of the “saving to suitors” clause, but the following points should be kept in mind:

  1. There are certain federal statutes that are designed to preempt state law claims. For example, seamen are prohibited from pursuing state law claims against their employers under the Jones Act, 46 U.S.C. § 30104 et seq.; the Jones Act provides them with their exclusive remedies. The same is true for longshoremen under the Longshore and Harbor Workers’ Compensation Act, 33 U.S.C. § 901 et seq.
  2. In other instances, a plaintiff can pursue a state law claim in addition to a federal maritime claim.

Many experienced maritime practitioners prefer to be in federal court because federal judges will often have more familiarity with maritime disputes. Some plaintiffs prefer to be in state court, especially if they can assert state law causes of action for which they may be entitled to a jury trial.

Another point to consider is that, if the plaintiff is asserting only a federal maritime cause of action, then the right to a jury may not be automatic. A plaintiff may try to also assert a state law cause of action, but the right to a jury trial may still need to be preserved pursuant to Federal Rule of Civil Procedure 38.

3. A Vessel Is a Legal Entity

Under U.S. maritime law, a vessel can be considered a tortfeasor, separate and apart from the vessel owner or operator, and a plaintiff can sue the vessel itself under the court’s in rem jurisdiction. Because a vessel can leave port under its own power, U.S. maritime law permits a plaintiff to “arrest” or detain the vessel before it can flee the jurisdiction, and the vessel will be “arrested” or attached and subject to the court’s judgment. A wrongful arrest may entitle the ship’s owner to damages.

Part of the skill in being a maritime litigator is being able to identify and sustain a cause of action against the vessel itself. An experienced maritime litigator will know when to file suit against the vessel in rem, as well as the vessel owner and operator in personam.

4. Maritime Arrest or Attachment

There are specialized maritime procedures involved in arresting or attaching a vessel, and only certain kinds of claims are sufficient to support a maritime arrest or attachment. The Federal Rules of Civil Procedure contain Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions, which govern the procedures for arrest and attachment. It would be helpful for a mediator to not only know that these rules exist but to be familiar with them as well.

Maritime arrest or attachment is often expensive and can be difficult to execute. In addition to drafting and filing the moving papers, maritime arrest or attachment is initially an ex parte proceeding, and because federal judges may be inexperienced in these kinds of maritime procedures, counsel should be prepared to advise the presiding judge on the extent of the court’s powers. In the case of arrest, once the judge signs the order, counsel will likely need to assist and advise the U.S. Marshal on how to effectuate service on the vessel itself. Maritime arrest is especially expensive because the arresting party will be required to pay the U.S. Marshal or a court-authorized third party to monitor the vessel in order to ensure it does not leave the jurisdiction.

Maritime arrest is generally regarded as extraordinary relief and should be undertaken only on the basis of certain maritime claims. Rather than proceeding with an arrest, experienced maritime counsel will often approach the vessel owner, or more likely its insurer, to ask if they are willing to post “security” for the claim. In exchange for not arresting the vessel, the vessel’s owner or operator or their insurers (collectively referred to as “vessel interests”) are often willing to enter into an agreement to pay the aggrieved party in the event of a settlement or judgment.

Moreover, for Jones Act or longshoreman claims, the defendants are almost always U.S.-based companies that may have sufficient insurance to pay a potential claim.

5. Security

Vessel interests will typically offer security in the form of a “letter of undertaking” (LOU). An LOU is a written contract between the plaintiff and vessel interests. The exact terms and conditions of an LOU are usually subject to careful negotiation. An LOU is not a bond but is meant to respond even if the vessel owner goes out of business and the vessel is sold to a third party. An LOU is effectively a promise to pay in the event of a settlement or judgment, and the insurers that issue LOUs have never (repeat, never) reneged on their commitment to pay. The amount of the LOU is also subject to negotiation. Generally speaking, an LOU is regarded as better than insurance because insurance is an agreement between the defendant and its insurers and is subject to the terms and conditions of the applicable insurance, whereas an LOU is a separate agreement between the claimant and whoever is backing the LOU, usually a protection and indemnity association, which is often referred to as a P&I Club.

With respect to security, it is important for the mediator to know the following:

  • What is the amount of security? What is the reasonable fair market value of the vessel?
  • Are the claimant’s damages greater or less than the amount of security?

If the vessel owner is in the U.S. and there is enough insurance, a plaintiff may decide it is not worth the trouble to threaten arrest and demand security. If security is posted, this is usually an indication that vessel interests take the claim seriously and may be motivated to settle a case sooner rather than later.

6. Limitation of Liability

Vessel interests will usually refuse to post security greater than the fair market value of the vessel because, under the Limitation of Liability Act, 46 U.S.C. § 30505 et seq., a vessel owner or operator is entitled to limit its liability, if any, to no more than the value of the vessel (after the casualty), plus any pending freight (any moneys due and owing for the movement of people or cargo). This law has been on the books since 1851 and has been invoked in virtually every major maritime casualty, including the Titanic and Deepwater Horizon. Note that if a ship sinks or burns down to the waterline, the limit of liability, if it applies, will be low and possibly negligible.

There are ways to pierce limitation, and although the limitation of liability is often regarded as controversial and bitterly contested, it is still good law, and vessel interests—assuming they are even willing to post security in an amount greater than the claim—will often want a discount based on the likelihood of sustaining the limitation.

Many judges and mediators dislike the limitation of liability because whether a claimant is entitled to pierce limitation is usually a fact-intensive exercise. Claimants are often represented by non-maritime practitioners who are unable or unwilling to accept the potential unfairness of the limitation, especially when the vessel is likely to be found to be at fault. To complicate matters further, issues relating to limitation of liability are almost always decided by a judge, not a jury, and for that reason, the emotional aspects of the claim may not have as much resonance.

7. Indemnity or Contribution

Many maritime disputes involve contractual indemnification provisions. This is because vessel owners rarely, if ever, operate the vessels themselves. For tax and liability reasons, commercial vessels are often operated or managed, or both operated and managed, by third parties. The arrangements between owners, operators, and managers are usually reduced to a writing and almost always contain an indemnification provision. Use of a slip or berth is also often subject to a contract with an indemnification provision. The hiring of third parties to provide a specific service is commonplace in the maritime industry and is usually subject to an indemnification provision. Enforcement of these provisions may be subject to federal maritime law, but often state law may need to be applied. Resolution of indemnification or contribution claims, especially if there is a third-party complaint, may be critical to disposal of the entire dispute. See Fed. R. Civ. P. 14(c).

Conclusion

As mediator, you may wish the parties to address all or some of these issues in their pre-mediation statement, along with a courtesy copy of applicable cases. If you do run across any of these issues, please consider yourself lucky. The author of this article has specialized in this area for his entire legal career and has always found these issues to be both challenging and fun.

Fair winds and following seas for all your future disputes.

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