Maritime Arrest
(Note: There is something called maritime attachment under U.S. law. For the purposes of this discussion, there is no distinction between maritime arrest or attachment.)
Commercial vessels, like tankers, will remain in port for only a few days before leaving to continue their voyage. Because a vessel can potentially leave the jurisdiction after causing damage, U.S. maritime law permits a plaintiff to “arrest” or detain the alleged tortfeasor. (For Jones Act or Longshore and Harbor Workers’ Compensation Act claims, the potential tortfeasors are almost always U.S.-based companies with enough insurance, thereby lessening the need for security. However, most commercial vessel owners and operators are located overseas; hence, the need for security. If the claim is against a recreational boat owner or operator, the value of the involved vessel may not be much, so the amount of available insurance may be a cap on any potential recovery.)
Maritime arrest is often expensive and can be difficult to execute. In addition to drafting/filing the arrest papers, maritime arrest 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. Assuming the judge can be convinced to sign the arrest order, counsel will likely need to assist and advise the U.S. marshal on how to effectuate service of the arrest papers 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 to ensure that it does not leave the jurisdiction.
Rather than proceeding with an arrest, counsel can approach the vessel owner, or more likely its insurer, to ask if it is willing to post “security” for the claim. In exchange for not arresting the vessel, vessel interests are often willing to enter into an agreement to pay the aggrieved party in the event of a settlement or judgment. The vessel will be allowed to continue its voyage while the vessel owner or its insurers will, per agreement, litigate and/or settle the matter.
Security
Vessel interests will typically offer security in the form of a letter of undertaking (LOU). An LOU is a written contract between the claimant and the vessel’s owner or operator or its insurers (collectively referred to as “vessel interests”). An LOU is effectively a promise to pay in the event of a settlement or judgment, and the insurers who issue these LOUs have never (repeat, never) reneged on their commitment to pay. (If they did renege, then claimants would have no alternative but to arrest and detain the vessel for potentially long periods of time.)
The exact terms and conditions of an LOU are subject to careful negotiation. An LOU is not a bond, but it potentially can be converted into a bond and is meant to respond even if the vessel owner goes out of business or the vessel is sold to a third party.
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 insured and its insurers and is subject to exclusions, limitations, or warranties set forth in the applicable policy, whereas an LOU is a separate agreement between the claimant and whoever is backing the LOU. (The party involved in drafting and issuing the LOU is usually a protection and indemnity association, often referred to as a P&I Club. There are only 13 P&I Clubs worldwide, which provide specialized insurance cover for roughly 90 percent of the world’s commercial tonnage.)
If the vessel owner is located in the United States and the claimant is certain there is enough insurance, it is conceivable that pursuing maritime arrest may not be cost-effective; but in the case of an oil spill, especially when federal authorities always have the option of taking over cleanup efforts, a claimant likely would be best served by threatening arrest and, in the alternative, offering to accept sufficient security. If security is posted, this is usually an indication that vessel interests will take the claim seriously and may be motivated to settle a case sooner rather than later.
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 (LOLA), 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 monies due and owing for the movement of people or cargo). 46 U.S.C. § 30505 et seq. (1851). (If a vessel sinks or burns down to the waterline, the limit of liability, assuming the limit applies, will be low, possibly even negligible.) 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.
There are ways to pierce limitation, and although LOLA is often regarded as controversial and bitterly contested, it is still good law. LOLA is almost always decided by a judge, not a jury. Vessel interests—assuming they are even willing to post security greater than the limit—likely will still want a discount in settlement based on the likelihood of sustaining the limitation.
Background on OPA ’90
On or about March 24, 1989, the motor vessel Exxon Valdez hit a reef and spilled close to 11 million gallons of crude oil in Prince William Sound, Alaska. This casualty was notable not only for the size of the spill, which was massive, but also for the damage suffered by the environment and local wildlife. In the aftermath of this disaster, the federal government enacted the Oil Pollution Act of 1990 (OPA ’90) in order to shift liability for oil spills on those parties responsible for the ownership and operation of vessels or facilities involved with the storage and transportation of petroleum products. 33 U.S.C. § 2702 et seq. (1990).
The highlights of OPA ’90 are as follows:
- The act includes increased requirements for how vessels are constructed in order to prevent spills.
- Increased requirements for the owners of vessels and certain facilities would respond to spills, including the staging of equipment ready to be utilized in order to clean up or otherwise limit the damage caused by a spill.
- Increased insurance requirements are imposed on vessel and facility owners.
- The act features a methodology by which the U.S. government could recover monies from bad actors who fail to comply with these new requirements.
- Monies recovered by these bad actors would be deposited into a fund administered by the U.S. Coast Guard, which would be used to compensate innocent parties damaged by spills.
- Most importantly, a vessel owner or operator would not be allowed to limit its liability pursuant to LOLA.
The last point requires some additional explanation.
Limitation of Liability, Again: The OPA ’90 Savings Clause
Prior to OPA ’90, in order to invoke limitation, a vessel owner or operator normally commenced suit pursuant to LOLA, which compelled all claimants to file their claim for oil pollution damages, including cleanup costs, within this “limitation proceeding.” A claimant could attempt to pierce limitation pursuant to LOLA, but failure to file a claim within this proceeding would estop a claimant from pursuing the vessel or the vessel owner or operator later for damages.
Since the enactment of OPA ’90, any claimant for oil spill damages would not need to file a claim within any limitation proceeding, and a vessel owner or operator would not be entitled to limit liability pursuant to LOLA. In particular, OPA ’90 has a savings clause, which states as follows:
Nothing in this Act or the Act of March 3, 1851 [LOLA] shall . . . affect, or be construed or interpreted as preempting, the authority of any State or political subdivision thereof from imposing any additional liability or requirements with respect to—
(A) discharge of oil or other pollution by oil within such State; or
(B) any removal activities in connection with such a discharge.
Arguments to Avoid the Application of OPA ’90
Because OPA ’90 often has the effect of imposing strict liability on the owners or operators of a vessel or facility involved with the handling or storage of petroleum products, oil pollution litigation often revolves around whether OPA ’90 should be invoked. There are a number of different arguments to avoid the application of OPA ’90., but one argument to consider in particular is whether the oil emanated from a “vessel” or “facility” as defined under the statute.
In Power Authority of the State of New York v. Motor Tug Ellen S. Bouchard, the U.S. Court of Appeals for the Second Circuit analyzed whether a submarine cable constituted a “facility” as defined by OPA ’90. 19-1140-cv, ___ F.3d ___ (2d Cir. 2020).
OPA ’90 defines facility as follows:
[A]ny structure, group of structures, equipment, or device (other than a vessel) which is used for one or more of the following purposes: exploring for, drilling for, producing, storing, handling, transferring, processing, or transporting oil. This term includes any motor vehicle, rolling stock, or pipeline used for one or more of those purposes.
Id. § 2701(9) (emphasis added).
The submarine cable at issue was part of an electrical power transmission cable system that ran underneath Long Island Sound from Westchester County to Nassau County. This cable was designed to transmit high-voltage electricity from a power grid in the northeast to homes and businesses in Long Island. Inside the cable was a type of dielectric fluid that served as both a coolant and lubricant within the cable. The net effect of the dielectric fluid was to allow the cable to carry a much higher electrical load than if it were completely dry inside the insulated cable. In order to function properly, the dielectric fluid had to be maintained at a constant pressure throughout the length of the cable. In order to maintain this constant pressure, the cable system had pressurization plants and reserve tanks. Depending on the temperature of the water, the pressure system could move this dielectric fluid through the cable.
On or about January 6, 2014, certain vessels operated by Bouchard Transportation decided to anchor in Long Island Sound, and one of its anchors struck a certain submarine cable owned by the Power Authority of the State of New York (NYPA). The NYPA incurred almost $10 million in costs to contain the leak and cleanup of the dielectric fluid. In response to various claims lodged by the NYPA, Bouchard commenced a limitation proceeding.
At the conclusion of discovery, Bouchard agreed that the cost to repair the cable was legitimately part of the limitation proceeding, but moved for summary judgment to argue that the submarine cable was not a facility as defined by the statute and, therefore, should also be part of the limitation proceeding.
In the lower court, Judge Paul Crotty focused on the words used for to determine whether the term facility applied to the submarine cable. Crotty interpreted section 2701(9) to mean that a facility had to be “used for” the purpose of “exploring for, drilling for, producing, storing, handling, transferring, processing or transporting oil.” In Crotty’s view, the submarine cable’s primary purpose was the transmission of electrical power and had little, if anything, to do with the transfer, handling, or storage of oil. 377 F. Supp. 3d 230 (S.D.N.Y. 2019).
In reversing the lower court, the Second Circuit in effect found that this analysis of “primary” or “secondary” purpose was introducing a restriction into section 2701(9) that did not otherwise appear. In the Second Circuit’s view, if the submarine cable had the capability of “transferring” the dielectric fluid (which also was found to be a petroleum-based fluid), then this was sufficient to satisfy the definition of facility under OPA ’90.
By adopting this interpretation of facility, the Second Circuit necessarily expanded the possible types of facilities that could be governed by OPA ’90. In the Second Circuit’s view, this interpretation is consistent with the overall objective of the statute, which is to encourage the shifting of all responsibility for oil pollution onto those parties responsible for the spill in the first place.
