US Maritime Law in 2018

Keith W Heard, Lennon, Murphy & Phillips LLC

The maritime legal scene in the US faced a variety of important judicial decisions and other developments in 2018.

Keith Heard

In terms of judicial decisions, probably the most dramatic ruling came in the MSC Flaminia limitation action in New York, where, in its second ruling on liability for the catastrophic mid-ocean explosion and fire in July 2012, the federal district court concluded that cargo shipper Deltech Corporation and NVOCC Stolt Tank Containers were 55 per cent and 45 per cent at fault respectively. The court found that Deltech violated its own procedures by shipping containers of divinylbenzene (DVB) from Baton Rouge, LA in the summer and then mistimed the shipment, meaning that the containers sat in the hot sunshine at a marine terminal in New Orleans for 10 days. Stolt was at fault, the court said, for failing to give the ocean carrier information it possessed about the heat-sensitive nature of the DVB, arranging to have the material loaded into the containers too early and having the material delivered to the New Orleans terminal too far in advance of vessel loading. The vessel’s owner and the time charterer/bill of lading issuer were exonerated. Notice of appeal has been filed against the ruling so further proceedings will take in the Second Circuit Court of Appeals unless the matter is resolved by settlement, which seems unlikely at this stage of the case.

Another important vessel casualty development concerned the August 2017 collision of the US Navy destroyer John S McCain and the Liberian-flag tanker Alnic MC off the coast of Singapore and Malaysia, east of the Straits of Malacca. Ten Navy sailors died and others were injured in the crash. The McCain was subsequently transported by heavy-lift vessel to a Navy facility in Yokosuka, Japan for repair. In February 2018, Alnic MC’s owner filed an action in federal district court in New York to obtain exoneration or imitation of liability under US law. Over 45 death and injury claims have been filed in the action and the Navy has filed a claim for damage to its destroyer.

Other litigation that made headlines in 2018 involved maritime lien claims asserted in the aftermath of the collapse of the OW Bunker group of marine fuel trading companies in November 2015. Physical suppliers of fuel to vessels, various companies in the OW Bunker group and ING Bank, as the assignee of the group’s receivables, all asserted liens against vessels, either directly in ship arrest actions filed in the US or against funds deposited in interpleader actions commenced by vessel owners or time charterers.

Various rulings were handed down in the direct and interpleader actions in the district courts, some holding that the physical suppliers had liens, some holding instead that the OW Bunker entities (and therefore ING as assignee) had liens, and at least one judge in New York ruling that none of these parties had liens. Appeals were filed, and in 2018, a number of important decisions were rendered by federal appellate courts in these actions.

Under the Commercial Instruments and Maritime Lien Act (CIMLA), a provider of necessaries may have a maritime lien against the receiving vessel under certain circumstances, if the supply was made on the order of the vessel or a person authorised by the owner (eg, a charterer). In ING Bank NV v M/V Temara, the US Court of Appeals for the Second Circuit, sitting in New York, held that the physical supplier had not satisfied CIMLA’s requirements because it provided bunkers at the direction of OW Bunker, a trader, rather than on the authority of the vessel, its owner or charterer. However, the OW Bunker entity did have a lien, with the court noting that “[a] contractor is entitled to assert a maritime lien under CIMLA when it contracts with an entity specified in the statute for the delivery of necessaries and those necessaries are delivered pursuant to that arrangement, even if by a subcontractor [e.g., the physical supplier].”

Similar appeals were pending in other circuit courts around the country. Once the Second Circuit ruled, several other circuits issued congruent decisions. In Valero Mktg & Supply Co v M/V Almi Sun, the Fifth Circuit Court of Appeals, sitting in New Orleans, affirmed the ruling of a district court that the physical supplier, who had not been paid when the relevant OW Bunker entity went bankrupt, likewise did not have a lien. Although the physical supplier satisfied CIMLA’s furnishing requirement, it could not show that it “provided the bunkers to the Vessel ‘on the order of the owner or a person authorized by the owner’,” as the statute also required. Whether the OW Bunker entity had a lien was not an issue in the case.

In Bunker Holdings Ltd v Yang Ming Liber Corp, the Ninth Circuit Court of Appeals in San Francisco agreed with the reasoning used and results reached by the Second and Fifth Circuits. (The Eleventh Circuit in Atlanta had reached a conclusion similar to the other circuits in Barcliff LLC v M/V Deep Blue, yet another OW Bunker case.)

Turning to another area of lien law, the Second Circuit handed down an unusual ruling in July in Leopard Marine & Trading Ltd v. Easy St Ltd. Easy Street bunkered the M/V Densa Leopard in Chile at the request of time charterer Allied Marine. The two companies had a long history of working together, so Easy Street did not immediately demand payment. After Allied became the subject of an involuntary bankruptcy proceeding, and nearly four years after the bunker stem, Easy Street arrested the ship in Panama, claiming a maritime lien under US law. The next day, the shipowner, Leopard Marine, filed an action in the Southern District of New York, seeking a declaratory judgment that Easy Street’s lien was barred by laches. 

In the district court, Easy Street moved to dismiss on the basis of international comity and lack of personal jurisdiction. That court disagreed, concluding that the case did not raise the “exceptional circumstances” necessary for abstention and that it had personal jurisdiction because of a US forum selection clause in the fuel supply contract between Easy Street and Allied, even though Leopard Marine was not a party to the contract. Turning to the shipowner’s contention, the district court concluded that laches applied, as Easy Street had delayed asserting the lien and the delay prejudiced Leopard Marine. The court focused, in particular, on the fact that Easy Street waited until after Allied had gone bankrupt to exercise the lien, which eliminated several means of repayment.

On appeal, the Second Circuit agreed with the district court. The Court of Appeals first considered whether Leopard’s use of a declaratory judgment action was an appropriate mechanism for determining lien rights. The court noted that usually the presence of the vessel in rem is necessary in a case to determine lien rights. Quoting from a leading treatise on procedure in the federal courts, the Second Circuit observed, however, that “[i]f the res is absent from the district, this . . . jurisdictional defect can be waived if the owner of the res voluntarily appears” and “waive[s]” the “presence requirement”.

The Second Circuit rejected Easy Street’s argument that “exceptional circumstances” favouring abstention existed because the Panamanian court had exercised in rem jurisdiction over the vessel. The Second Circuit said this might be true, on the basis of the “prior exclusive jurisdiction” doctrine, if both the Panamanian action and the US action were in rem or quasi in rem. However, the court noted, “the prior exclusive jurisdiction doctrine does not generally apply to situations where one action is in rem and the other in personam. The adjudication of rights in personam simply does not impede the possession or control of the property required for maintenance of an in rem action.” 

The Second Circuit then considered whether the district court correctly concluded that Easy Street’s assertion of a lien was barred by laches, which requires unreasonable delay with resulting prejudice to the defendant. The Court of Appeals noted in particular that “Easy Street’s failure even to inform Leopard Marine of Allied’s non-payment of the fuel bill within the first few months [after the fuel supply] prejudiced Leopard Marine” because the vessel was still under charter to Allied and Leopard had various remedies at its disposal that it then lost. (In fact, Easy Street waited over two years before telling Leopard that Allied had never paid the fuel bill.) The Court of Appeals also remarked that “[t]he facts of this case implicate the principle the district court applied: where a lienor chooses to take time to proceed in personam or informally, trusting that the indebted party – here, the charterer – is good for its commitments, the vessel’s owner should not bear the costs of that choice.” Here, the shipowner was being asked to “bear the costs” of Easy Street’s choice by having its vessel arrested long after the owner had lost its right to recover indemnity from Allied. The Court of Appeals concluded the district court did not abuse its discretion in concluding that Easy Street’s assertion of a lien was barred by laches.

One constant in US maritime law is personal injury litigation, a testament to the dangerous nature of work on vessels and on the docks and offshore oil rigs. So it has been over the past year. In Batterton v Dutra Group, the Ninth Circuit Court of Appeals held that a seaman can seek punitive damages in connection with a claim for unseaworthiness under the general maritime law. The plaintiff in Batterton was a deckhand injured when a hatch cover blew open, crushing his left hand during an operation to pump pressurized air into a compartment below deck. Plaintiff sued the vessel owner for unseaworthiness, seeking punitive damages and other remedies. The district court denied the vessel owner’s motion to strike the punitive damages claim and, on appeal, the Ninth Circuit affirmed, disagreeing with the Fifth Circuit’s en banc holding in McBride v Estis Well Service. This “circuit split” now sets the stage for the Supreme Court to intervene to resolve the issue of whether punitive damages are recoverable on a claim for unseaworthiness under the general maritime law. 

The Fifth Circuit, probably the most active centre of maritime litigation in the country, itself made news with its en banc decision in the case of In re Larry Doiron Inc, a case involving injury that occurred when a barge-mounted crane struck a worker on a gas well off the Louisiana coast. To some extent, federal and state law have overlapping applicability to events on oil and gas platforms in the Gulf of Mexico. In some cases, whose law applies depends on the nature of the contract. If it is a maritime contract, federal law will apply and, if not, then state law. For years, courts in the Fifth Circuit, which covers Louisiana and Texas, applied the six-factor test established by the court in Davis & Sons Inc v Gulf Oil Corp. However, in Doiron, the court abandoned the old test in favour of a new, streamlined two-pronged test in which courts are to ask whether “the contract [is] one to provide services to facilitate the drilling or production of oil and gas on navigable waters” and, if so, whether “the contract provide[s] or do the parties expect that a vessel will play a substantial role in the completion of the contract”. If the answer to both is affirmative, the contract is maritime in nature.

The Fifth Circuit observed that the barge and crane in Doiron were only brought in to deal with an unexpected problem. Thus, “use of the vessel to lift the equipment was an insubstantial part of the job and not work the parties expected to be performed. Therefore, the contract is nonmaritime and controlled by Louisiana law.” 

No review of developments in 2018 would be complete without mentioning that the federal government reversed course and reimposed sanctions against Iran. On 8 May 2018, President Trump announced that the US was withdrawing from the Joint Comprehensive Plan of Action (JCPOA) and would reimpose secondary sanctions against Iran that had been suspended upon commencement of the JCPOA. As a result, sanctions are being reimposed on Iran’s port operators, shipping and shipbuilding sectors; petroleum-related transactions with the National Iranian Oil Company, the National Iranian Tanker Company and others; transactions by foreign financial institutions with the Central Bank of Iran; the provision of underwriting services, insurance or reinsurance; and Iran’s energy sector. Detailed consideration of the sanctions is beyond the scope of this article, but their impact on shipping should be obvious.  

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