U.S. Admiralty Law: Are We Drifting Away from Traditional Principles of Uniformity & Common Sense?

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1 U.S. Admiralty Law: Are We Drifting Away from Traditional Principles of Uniformity & Common Sense? By: George M. Chalos, Esq. CHALOS & Co, P.C. International Law Firm

2 Article III Admiralty & Maritime Jurisdiction Article III of the U.S. Constitution: The judicial power shall extend... to all cases of admiralty and maritime jurisdiction.... The U.S. Supreme Court has long held that Article III s grant of admiralty jurisdiction refers to a system of law coextensive with, and operating uniformly in, the whole country. The Lottawanna, 88 U.S. 558, 21 Wall. 558, 575, 22 L. Ed. 654 (1875).

3 Article III Admiralty & Maritime Jurisdiction But does it need to make sense?

4 What is Admiralty? Black s Law Dictionary broadly defines admiralty as: A court exercising jurisdiction over maritime causes, both civil and criminal, and marine affairs, commerce and navigation, controversies arising out of acts done upon or relating to the sea, and over questions of prize. Also, the system of jurisprudence relating to and growing out of the jurisdiction and practice of the admiralty courts. To fall within admiralty jurisdiction, a claim must have a salty flavor. Kossick v. United Fruit Co., 365 U.S. 731 (1961). But when is a claim more sandy than salty? A. Elephant Corp. v. Hifocus Group Limited, 2009 U.S. Dist. LEXIS (S.D.N.Y. 2009).

5 The Expanding Scope of Admiralty Jurisdiction 1991 Courts should focus on the nature of the services performed... In determining whether a... contract is a maritime contract. Exxon Corp. v. Central Gulf Lines, Inc., 500 U.S. 603, 613, n. 7, 111 S. Ct (1991). In Exxon, the U.S. Supreme Court overruled the century-old rule that agency contracts were per se excluded from admiralty jurisdiction.

6 The Expanding Scope of Admiralty Jurisdiction 2004 The Supreme Court recognized that the boundaries of admiralty jurisdiction over contracts as opposed to torts or crimes being conceptual rather than spatial, have always been difficult to draw and held that the appropriate inquiry is whether the principal objective of a contract is maritime commerce. Norfolk Southern Ry. v. James N. Kirby, Pty Ltd., 543 U.S. 14, 23-24, 125 S. Ct. 385 (2004). A maritime case about a train wreck.

7 The Expanding Scope of Admiralty Jurisdiction 2005 The Second Circuit Court of Appeals recognized that Kirby calls for reconsideration of [its] precedent concerning the boundaries of the courts admiralty jurisdiction. Folksamerica Reinsurance Co. v. Clean Water of New York, Inc., 413 F. 3d 307, 314 (2d Cir. 2005). Should the Court expand the boundaries of admiralty jurisdiction?

8 Then why have District Courts been slow to embrace change?

9 Then why have District Courts been slow to embrace change?

10 S&P / Supplies of Necessaries, Shipbuilding and Repair A ship repair contract is a maritime contract giving rise to a maritime claim & admiralty jurisdiction. New Moon Shipping Co. v. Man B&W Diesel, AG, 121 F.3d 24, 28 (2d Cir. 1997). A contract to supply necessaries to a vessel, or to provide agency services, is a maritime contract falling within admiralty jurisdiction. Exxon Corp. v. Central Gulf Lines, Inc., 500 U.S. 603, 111 S. Ct (1991).

11 S&P / Supplies of Necessaries, Shipbuilding and Repair A contract for the sale of a vessel is not a maritime contract. The ADA, 250 F. 194 (2d Cir. 1918). A contract to build a vessel is not a maritime contract. People s Ferry Co. v. Beers, 61 U.S. 393 (20 How.) (1858). A contract to supply materials for a vessel s construction is not a maritime contract. People s Ferry Co. v. Beers, 61 U.S. 393 (20 How.) (1858). WHY?

12 S&P / Supplies of Necessaries, Shipbuilding and Repair Only one District Court has taken the position that the Supreme Court s Kirby opinion overruled the general rule that a contract for the sale of a ship is nonmaritime. Kalafrana Shipping Ltd. v. Sea Gull Shipping Co., Ltd., 591 F. Supp. 2d 505, 511 (S.D.N.Y. 2008) (Schiendlin, U.S.D.J.). No other District Court or Circuit Court has adopted Kalafrana or otherwise followed its reasoning.

13 Is the Jones Act Whack? The law has always treated seamen as wards of the Court, requiring special protections... But why are Jones Act seamen deprived of remedies that would otherwise be available? A Jones Act seaman may not recover punitive damages. McBride v. Estis Well Service, LLC, 768 F.3d 382 (5th Cir. 2014); Miles v. Apex Marine Corp., 498 U.S. 19 (1990). Jones Act seamen work on vessels but are their claims statutory or do they sound in admiralty? Jones Act seamen can demand a trial by jury, even though Fed. R. Civ. P. 38(e) excludes maritime claims from the right to a jury trial A claim for penalty wages does not necessarily fall within admiralty jurisdiction but may be brought as a statutory claim under penalty wage statute, 46 U.S.C , under the saving to suitors clause in 28 U.S.C. 1333(1). See Mylonakis v. M/T Georgios M, 2013 U.S. Dist. LEXIS (S.D. Tex. 2013).

14 All Clear?

15 Service Contracts / Derivatives Disputes arising out of services contracts, such as brokerage contracts, do not ordinarily invoke maritime jurisdiction. Shipping Fin. Servs. Corp. v. Drakos, 140 F. 3d 129, (2d Cir. 1998). But other courts have recognized that brokerage has a significant impact on maritime commerce (see Kan International, Inc. v. Coastal Tankships U.S.A., 1997 U.S. App. LEXIS 4800 (9th Cir. 1997)) isn t this the test set forth by the Supreme Court in Kirby? But disputes arising out of agency contracts are not per se excluded from admiralty jurisdiction. Exxon Corp. v. Central Gulf Lines, Inc., 500 U.S. 603, 11 S. Ct (1991)

16 Service Contracts / Derivatives Joint venture agreements to operate a maritime business are not subject to the Courts admiralty jurisdiction. The Detroit, 63 U.S. 330, 334, 16 L. Ed. 249 (1859) shouldn t this be revisited after Kirby? But forward freight agreements (FFAs) have repeatedly been held be maritime contracts; despite being derivatives or financial instruments. Flame S.A. v. Freight Bulk Pte. Ltd., 762 F.3d 352, 363 (4th Cir. 2014); Flame S.A. v. M/V LYNX, 2010 U.S. Dist. LEXIS (E.D. Tex. 2010); Transfield ER Futures Ltd. v. Deiulemar Shipping S.P.A., 2012 U.S. Dist. LEXIS 5040 (E.D. La. 2012). Second Circuit: D Amico v. Primera stay tuned...

17 What is a Vessel? The U.S. Code defines a vessel as every description of watercraft or other artificial contrivance used, or capable of being used, as a means of transportation on water. 1 U.S.C. 3.

18 What is a Vessel? This definition was seemingly broadened by the U.S. Supreme Court in Stewart v. Dutra Const. Co., 543 U.S. 481, 125 S. Ct. 1118, 160 L. Ed. 2d 932 (2005), differentiating between moored and fixed structures, and those capable of some self-propulsion. Led to many lower courts applying an anything that floats approach.

19 What is a Vessel? In 2013, the Supreme Court sought to clarify and limit this expansion, holding that the central question is whether a reasonable observer... would consider it designed to a practical degree for carrying people or things over water. Lozeman v. City of Riviera Beach, 133 S. Ct. 735, 2013 AMC 1 (2013). The Supreme Court reversed the 11 th Circuit Court of Appeals and held that Mr. Lozeman s houseboat was not a vessel, looking to both its physical attributes and its use.

20 What are Navigable Waters? The EPA and Army Corps of Engineers follow the C.F.R. s definition: navigable waters include [a]ll waters which are currently used, or were used in the past, or may be susceptible to use in interstate or foreign commerce, including all waters which are subject to the ebb and flow of the tide. 33 C.F.R (a)(1); 40 C.F.R (s)(1). A body of water is navigable-in-fact if it is susceptible to use as a highway of commerce. The Daniel Ball, 77 U.S. 557 (1870).

21 What are Navigable Waters? But what about Utah v. U.S., 403 U.S. 9 (1971)?

22 What are Navigable Waters? The Great Salt Lake was deemed navigable in fact despite the fact that no interstate commerce or other commercial activity takes place on the lake.

23 What is an Island? United States v. McPhee, 33 F.3d 1269, 1279 n.9 (11th Cir. 2003) the 11 th Circuit Court of Appeals, although recognizing that neither Simon nor Garfunkel has been identified as a nautical expert, cited I am a Rock and noted that the Court could discern no reason why something could not be both a rock and an island at the same time. (Nonetheless, the Court ultimately found the land mass in question was a rock and not an island).

24 Choice of Law Rule B vs. Rule C Recent line of cases counsel that U.S. law should apply in determining whether a maritime claim exists for the purpose of interference with property located in the United States and/or with respect to whether there is U.S. admiralty jurisdiction to enforce a foreign judgment that would not be deemed maritime under the laws of the foreign jurisdiction in which the judgment was rendered. D Amico Dry Limited v. Primera Maritime (Hellas) Limited, 2014 U.S. App. LEXIS (2d Cir. 2014); Blue Whale Corp. v. Grand China Shipping Development Co., 722 F.3d 488 (2d Cir. 2013). Fourth Circuit recently followed these cases in Flame S.A. v. Freight Bulk Pte. Ltd., 762 F.3d 352, 361 (4th Cir. 2014). But what about Rule C? Why is a maritime lien claim different from a maritime claim?

25 Choice of Law Rule B vs. Rule C The Ninth, Fourth, and Fifth Circuits have all followed a three (3) step framework to determine whether a maritime lien exists: (1) apply a Lauritzen test to determine the law governing contract formation; (2) applying the controlling law, determine whether the contract incorporates the choice of law provision; and (3) if the choice of law provision is incorporated, evaluate whether the party acquired a maritime lien. Lien claims for unpaid bunkers ordered by deadbeat Charterers? But if the Vessel is arrested in the U.S. why don t Courts simply look to U.S. law to determine if a maritime lien exists? Why is Rule C different from what Flame, D Amico, and Blue Whale say?

26 MARPOL/APPS 33 U.S.C. 1908(a) authorizes the U.S. government to request that up to 50% of the fine paid by a corporate criminal defendant under APPS to be paid to the whistleblower(s) who provided information leading to a conviction. The whistleblowers who are fully participating in pollution acts which would otherwise be defined as barratry -- are induced by U.S. law to break company policies and international laws and regulations; to purposefully fail to report the known violations and take steps to actively hide the activity from the Owners and Operators; and to provide the tip to the U.S. Coast Guard in a U.S. port to obtain a big reward payout.

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28 The Chutzpah Doctrine Chutzpah is a young man, convicted of murdering his parents, who argues for mercy on the ground that he is an orphan. Breneman v. Federal Aviation Administration, 30 Fed. Appx. 7 (D.C. Cir. 2002). Taxpayer cannot complain about not receiving notice when he moved without leading a forwarding address and then lived under an assumed name. Rappaport v. United States, 583 F.2d 298, 301 (7th Cir. 1978).

29 MARPOL/APPS 33 U.S.C. 1904(h) provides the following: A ship unreasonably detained or delayed by the Secretary acting under the authority of this chapter is entitled to compensation for any loss or damage suffered thereby.

30 MARPOL/APPS In Angelex Ltd. v. United States, 723 F.3d 500 (4th Cir. 2013), the Fourth Circuit concluded that a District Court lacks authority to review the Coast Guard s exercise of discretion to detain a vessel under 33 U.S.C. 1908(e) at the detention stage of the investigation. In so holding, the Court expressly relied on the government s own arguments that Congress, in 1904(h), authorized an after-the-fact statutory remedy whereby a shipowner could seek compensation for damages resulting from unreasonable delay or detention. But when Angelex has sought to pursue this after-the-fact remedy authorized by Congress, the government promptly moved to dismiss the Complaint. Angelex v. United States, 15-cv RC (D. D.C. filed Jan. 14, 2015).

31 Bottom Line: Is the U.S. Maritime Law Drifting Away from Uniformity & Common Sense?

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