On September 12, 2024, in In re Live Life Bella Vita LLC, No. 23-55613 (9th Cir. Sept. 12, 2024), the Ninth Circuit joined the majority of circuits by holding that claims for indemnity and contribution are considered separate claims in the context of Limitation Actions, and thus, if a claimant wants to lift the federal court stay and proceed in state court, all claimants must execute a stipulation preserving the shipowner’s right to have the federal court determine limitation of liability.
Congress enacted the Limitation of Liability Act (the “Limitation Act”) to protect shipowners from the extreme liability resulting from incidents at sea and to encourage investment in the American shipping industry. The Limitation Act placed America in a similar posture to other European seafaring countries that have comparable laws. The Limitation Act allows a vessel owner to commence a federal lawsuit and create a concursus by requiring all parties with claims arising from the voyage at issue to assert their claims in the federal court case by a certain deadline or risk default. A federal judge then determines whether the vessel owner is at fault, and if it is at fault, whether the vessel owner’s liability should be limited.
Even if a vessel owner is held to be liable for the claimed damages, it may still be allowed to limit its liability to the post-incident value of the vessel and its pending freight if the vessel owner is without knowledge or privity of the negligent act that caused the accident. The vessel owner’s liability is capped to the value of the limitation fund, and a federal judge apportions the limitation fund between all claimants.
Regardless of whether the vessel owner is at fault or entitled to limit its liability, the ability to create a concursus, set a deadline for claims arising from the voyage to be asserted, and have a federal judge decide limitation issues are all beneficial to the vessel owner. Claimants typically cannot assert their “Savings to Suitors” rights to assert their claims in state court before a jury until the federal judge decides whether the vessel owner was negligent and whether it is entitled to limit its liability. One exception to this rule is if the claimant (or all claimants if there are multiple claimants) executes a stipulation that (1) the federal court has exclusive jurisdiction to determine whether the shipowner has privity or knowledge of the alleged negligence or unseaworthiness, (2) the claimant will not assert res judicata from the state court decision, and (3) the claimant will not enforce a judgment above the value of the limitation fund.
Where there is a single claimant, this standard is easily met if the claimant’s stipulation meets the three prerequisites. However, getting multiple claimants to agree to the stipulation is more difficult. As a result, parties have litigated whether certain claimants in a Limitation Action “count” for purposes of the stipulation rule. The majority of courts, including the Second, Third, Fifth, Seventh, and Eleventh Circuits, hold that a claimant seeking contribution or indemnity must also enter into a stipulation in order for the federal limitation stay to be dissolved, but the Sixth and Eighth Circuits have held that indemnity or contribution claimants are not claimants who must stipulate because indemnity and contribution claims are “merely derivative” of the claim for injury, reasoning that the party seeking reimbursement “can recover only as much as the injured claimant was entitled to recover.” See In re Williams Sports Rentals, 90 F.4th 1032, 1038 (9th Cir. Jan. 16, 2024) (discussing the circuit split on indemnity and contribution claims). Prior to Live Life Bella Vita, the Ninth Circuit had not previously taken a position.
Notably, the minority opinion held by the Sixth and Eighth Circuits is based on cases from the 1980s, before the opinion held by the majority of Circuits was developed. The minority opinion employs the rationale that the indemnity or contribution claim could not exceed the vessel owner’s limitation fund because the damages would be capped at the value of the original claimant’s claim. See, e.g., S&E Shipping Corp. v. Chesapeake & Ohio Ry. Co., 678 F.2d 636 (6th Cir. 1982). The minority opinion reasons that because a shipowner’s right to limit its exposure to the value of the vessel is not threatened, the purposes of the limitation action are upheld without the contribution or indemnity claimant’s stipulation. However, as the majority of circuits have explained, because maritime law claims are subject to joint and several liability, there is a possibility that the indemnity or contribution claimant’s claim against the vessel owner could exceed the value of the limitation fund if the personal injury claimant collects the full value of the fund against the vessel owner and then collects the rest from the indemnity claimant under joint and several liability. The indemnity claimant could then sue the vessel owner to recoup the amount it paid under joint and several liability from the vessel owner, thus exposing the vessel owner to liability in excess of the limitation fund.
In Live Life Bella Vita, Eduardo Loaiza, a diver, was dispatched by his employer to examine the bow thrusters on a sailboat, the ALLORA, owned by Live Life Bella Vita. Loazia was injured when the bow thruster was activated while Loazia was underwater. The vessel owner filed a limitation action, Loaizia filed a claim in the limitation and filed third party complaints against his employer and four other persons and entities. The third-party defendants also filed claims in the limitation action. As is common, the personal injury plaintiff, Loaiza, sought to lift the limitation action’s injunction so he could pursue his claims in state court and before a jury. Loaiza filed a stipulation arguing that he was the sole claimant, and the District Court agreed, lifting the stay and finding that the contribution or indemnity claimants were not “claimants” who also needed to stipulate.
As a matter of first impression, the Ninth Circuit was faced with the issue of whether indemnity claims constitute separate claims for purposes of the Limitation Act—determining whether a seaman can pursue his claims in state court without the need for a stipulation from those bringing indemnity and contribution claims. The court unequivocally held that claims for indemnity, contribution, or attorney’s fees create a multiple claimant scenario under the Limitation Act. The Court stated that a “district court must consider actual and potential indemnity and contribution claims from named co-defendants before dissolving any injunction under the Limitation Act.” (emphasis in original).
Further, the Court held that “each party to the district court proceeding, including alleged joint tortfeasors who have not yet asserted claims for indemnity or contribution, must make the requisite stipulations before any party may proceed in state court.” This holding ensures that the shipowner’s right to limit liability is protected and “does not necessarily preclude claimants from enjoying their choice of remedies.”
The Ninth Circuit’s decision is consistent with the prevailing view among circuits, including the Second, Third, Fifth, Seventh, Eighth, and Eleventh Circuits, and was reasoned on upholding the goals of the Limitation Act—to streamline the distribution of losses and limit a shipowner’s exposure to the value of the vessel.
For further questions regarding this decision, contact Liskow attorneys Michael Golemi, Ray Waid, Libby McIntosh, and Liz Strunk and visit the firm’s Maritime Litigation practice page.
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