Opinion ID: 446773
Heading Depth: 2
Heading Rank: 1

Heading: The Controlling Law--Contract and Maritime Law

Text: 24 The events leading to this appeal have cut across the boundaries of two nations, the United States and India, and two states within the United States, Louisiana and Pennsylvania. It is therefore imperative that we first focus on the governing law. 8 25 The initial step in any choice of law analysis involves the characterization of the subject matter of or the issues in the case (e.g., tort or contract) and of the nature of each issue and whether it raises a problem of procedural or substantive law. E. Scoles & P. Hay, Conflict of Laws 50-51 (1984). 26 This appeal involves two different types of documents--a special power of attorney and a release--the validity of which raise interdependent issues of contracts and agency, admiralty and wrongful death. Presumably, because both documents were drafted and executed in India but relate to the settlement of a federal maritime wrongful death and survival claim, the district court did not differentiate between the two and implicitly concluded that federal maritime law controlled the validity of both documents. We disagree. We must separate these issues to determine the law most appropriate to govern the validity of each document. See Aaron Ferer & Sons Ltd. v. Chase Manhattan Bank, 731 F.2d 112 (2d Cir.1984); Pearson v. Northwest Airlines, Inc., 309 F.2d 553 (2d Cir.1962) (en banc), cert. denied, 372 U.S. 912, 83 S.Ct. 726, 9 L.Ed.2d 720 (1963). 27 (i) Determining the Applicable Law--The Validity of the Special Power of Attorney 28 Our first inquiry is which state's law is applicable to the special power of attorney. 9 It is settled that the classification and interpretation of conflict of laws concepts and terms are determined in accordance with the law of the forum. Restatement, Conflict of Laws 2d, Sec. 7(2). Klaxon Co. v. Stentor Electric Manufacturing Co., Inc., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941) holds that federal courts must apply the conflict of laws rules prevailing in the states in which they sit. See also Day & Zimmermann, Inc. v. Challoner, 423 U.S. 3, 96 S.Ct. 167, 46 L.Ed.2d 3 (1975); McKenna v. Ortho Pharmaceutical Corp., 622 F.2d 657 (3d Cir.1980). 29 The petition in question is based entirely upon Mrs. Chatterjee's allegations that her son-in-law, Ghosal, was not authorized to execute the release. The special power of attorney purports to give Ghosal the right to sign the release on Mrs. Chatterjee's behalf, thus the validity of the release and ensuing settlement are predicated on the validity of the special power of attorney. A power of attorney is an instrument in writing whereby one person, as principal, appoints another as his agent and confers the authority to perform certain specified acts or kinds of acts on behalf of the principal. Thus, the legal question before us concerns the relationship between Mrs. Chatterjee and Ghosal, calling into play the substantive law of contracts and principles of agency, as well as questions of fraud and forgery. We must therefore look to the forum's--Pennsylvania's--choice-of-law rules in contract cases. 30 In Melville v. American Home Assurance Co., 584 F.2d 1306, 1311-1313 (3d Cir.1978), this court determined that the flexible conflicts methodology combining interest analysis and Restatement Second of Conflicts of Laws contacts theory employed by the Pennsylvania Supreme Court in the tort case of Griffith v. United Air Lines, Inc., 416 Pa. 1, 203 A.2d 796 (1964), is to be extended to contracts actions. Thus, under Pennsylvania choice-of-law principles, the place having the most interest in the problem and which is the most intimately concerned with the outcome is the forum whose law should be applied. Griffith, 416 Pa. at 22, 203 A.2d at 805-806. 31 Applying Griffith, we believe that Pennsylvania's choice-of-law rules on the validity of the power of attorney refer us to the law of India. India has a more compelling interest in that the agent was from India even though the principal now allegedly resides in Bangladesh. Similarly, all contacts to the document are in India. The special power of attorney was executed in India and purports to bear the alleged stamp or attestation of Indian judicial officials. If the signature of Mrs. Chatterjee on the power of attorney was forged, the forgery occurred in India. Thus, the validity of the special power of attorney of December 17, 1975 should be determined by Indian law if an actual conflict exists with respect to the potentially applicable foreign rule of law, so as to make the use of the forum's law appropriate. 32 If the foreign law to which the forum's choice-of-law rule refers does not differ from that of the forum on the issue, the issue presents a false conflict. To properly assess whether an actual conflict exists in this case, we must compare the Indian law controlling the contractual relationship of principal and agent, which derives from English common law, as well as Indian law on fraud and forgery, with the common law of Pennsylvania. Any differences in India's laws and Pennsylvania's laws must have a significant effect on the outcome of the trial in order to present an actual conflict in terms of choice of law. See e.g., Melville, supra. 33 Under both Pennsylvania and Indian law, a principal is generally not liable on account of acts committed by an agent outside of the actual or apparent scope of his authority unless the acts are subsequently ratified by the principal. See Elderton State Bank v. Citizen's Insurance Agency & Mortgage Company, 86 Pa.Super. 85 (1926); Indian Contract Act Sec. 237 (1872). In this regard, principals are not liable in contract for misrepresentations or frauds committed by agents in matters which do not fall within the agent's authority. See Elderton State Bank, supra; Indian Contract Act Sec. 238 (1872). Thus, there is no significant difference between the agency principles of India and Pennsylvania. Under both, Mrs. Chatterjee would not be bound by a release executed by Ghosal if he lacked the requisite authority. Nor would she be liable for Ghosal's alleged forgery or fraud unless she later adopted and ratified his acts. 34 In contrast, as to proof of fraud, differences in the elements of the cause of action in India and Pennsylvania would significantly affect Mrs. Chatterjee's burden of proving that the special power of attorney was forged. 10 A misrepresentation is actionable under Indian law only if it relates to a material fact whereas, in Pennsylvania, materiality is not a requisite to the action if the misrepresentation is knowingly made or involves a non-privileged failure to disclose. The element of scienter is proven in India if one shows either intent or reason to expect that the representations will be acted upon by the person to whom they were made. On the other hand, in Pennsylvania, mere false information can satisfy the scienter component where a duty to know is imposed. Additionally, Indian law speaks in terms of action while Pennsylvania requires justifiable reliance on the part of the person being defrauded. 35 We find, therefore that a conflict exists between Pennsylvania and Indian law as they pertain to the elements of fraud. When the forum's choice-of-law rule refers to the law of another jurisdiction and an actual conflict is presented, a court is to apply the foreign law to the extent that it deals with the substance of the case, i.e. it affects the outcome of the litigation. For this reason, we conclude that the district court erred in failing to apply the substantive law of India in order to determine whether the special power of attorney was valid. 36 (ii) Determining the Applicable Law--the Validity of the Release 37 Shifting our focus to the shipowners' relationship to Ghosal and Mrs. Chatterjee, we find that the district court did not err in concluding that federal maritime law governs the validity of the release. It is well-established that a release is the giving up or the abandoning of a claim or right to the person against whom the claim exists or the right is to be enforced or exercised and the release in this matter is a contract to abandon a maritime death claim under federal law. 38 The maritime disaster giving rise to the limitation of liability proceedings occurred in the waters of the Delaware River at Marcus Hook, Pennsylvania. The decedent was a citizen of India and a crewmember of the S.S. CORINTHOS. Claims for his wrongful death, which occurred in the territorial waters of Pennsylvania, were asserted under federal maritime law. Moragne v. States Marine Lines, 398 U.S. 375, 90 S.Ct. 1772, 26 L.Ed.2d 339 (1970). The release was executed in India, but in connection with the limitation of liability proceedings pending in the United States District Court for the Eastern District of Pennsylvania. It relates entirely to the settlement of a federal maritime wrongful death and survival claim over which the federal court has jurisdiction. See North Pacific Steamship Co. v. Hall Brothers Railway & Shipbuilding Co., 249 U.S. 119, 39 S.Ct. 221, 63 L.Ed. 510 (1919) (contract test of maritime subject matter). 39 The enforceability or validity of such settlement agreements is determined by federal law where the substantive rights and liabilities of the parties derive from federal law. Mid-South Towing Co. v. Har-Win, Inc., 733 F.2d 386 (5th Cir.1984). 11 The law to be applied in this case is federal, since the rationale behind the court's admiralty jurisdiction is the interest in dealing with all the major concerns of the shipping industry as one body of law. See G. Gilmore & C. Black, The Law of Admiralty 29 (2d ed. 1975). 40 Therefore, the district court correctly decided that the validity of the release of December 17, 1975 is to be scrutinized under general federal maritime law. 41 Since general federal maritime law applies, our query then becomes whether the district court was also correct in holding that Garrett v. Moore-McCormack Co., 317 U.S. 239, 248, 63 S.Ct. 246, 252, 87 L.Ed. 239 (1942), is the controlling legal standard or whether we must look to some other body of general federal maritime law. In Garrett, the Supreme Court held that a release executed by a seaman is subject to careful scrutiny and that one who sets up a seaman's release has the burden of showing that the release was executed freely, without deception or coercion, and that it was made by the seaman with full understanding of his rights. The question before this court is whether the contractual relationship at issue here is analogous to the relationship of the seaman and the shipowner so as to bring it within the purview of admiralty's wardship doctrine and to impose upon the shipowners the burden of proving the validity of the release, subject to the careful scrutiny called for in Garrett. 12 42 In the earlier appeal of this matter, this court indicated in a footnote that 43 This release was not signed by the crewmember but by one purportedly representing the crewmember's surviving family. It has been held that the strict scrutiny applied to settlements executed by crewmembers, see Garrett v. Moore-McCormack Co., 317 U.S. 239, 248, 63 S.Ct. 246, 252, 87 L.Ed. 239 (1942), extends to settlements made by their relatives. Lewis v. S.S. Baune, 534 F.2d 1115, 1123 (5th Cir.1976). The QUEENY owners contest the applicability of the strict standard favoring crewmembers. 44 In re Bankers Trust Co., 636 F.2d 37, 39 n. 1 (3d Cir.1980). The shipowners pointed to a Second Circuit decision, Lampsis Navigation Ltd. v. Ortiz de Cortes, 694 F.2d 934 (2d Cir.1982), decided after the district court's November 29, 1982 ruling in this matter. 45 In Lampsis, the Second Circuit held that the release of a wrongful death claim by a seaman's widow would not be as closely scrutinized as a release executed by a seaman. As in Garrett, certain historical factors were cited as providing a basis for justifying special treatment of seamen as wards of the Admiralty court, including their alleged propensity toward rashness and credulity ... their nomadic nature and the perils they encounter at sea. Noting also the particularly authoritarian relationship of shipowners and their representatives to seamen, the Second Circuit reasoned that these protections are personal and arise from the sailor's own peculiar status. Thus, none of the factors [which warrant treating seamen as wards of admiralty courts] apply to relatives of seamen who are members of the 'land-based community' with ready access to the advice of friends and the guidance of counsel. Lampsis, 694 F.2d at 936. The shipowners urged this court to adopt the view of the Second Circuit. (Appellee's Brief at 6, n. 8). See also, Capotorto v. Compania Sud Americana de Vapores, 541 F.2d 985 (2d Cir.1976). 46 The earlier appeal of this matter was before this court in 1980 and while this issue was not decided, this court did refer in dictum to the applicability of the strict standard and cited Lewis v. S.S. Baune, 534 F.2d 1115, 1123 (5th Cir.1976), which adopts the contrary view that an admiralty court's careful scrutiny of settlement agreements executed by seamen under Garrett is extended to settlements made by relatives of seamen. 47 As a matter of policy, we follow the course of the Lewis court and conclude that the rationale of Garrett applies to members of a seaman's family who are landbased. Although the surviving family members were not aboard the ship, it is the impact on the seaman, which occurred on navigable waters, that has caused loss and injury to them. At issue here is the release of a wrongful death claim, the purpose of which is to compensate the surviving family members who might be expected to receive support and assistance from the deceased seaman had he lived. Furthermore, we are dealing with the release of a survival action which permits the cause of action which the victim owned at the time of death to survive and be carried on. If we were to conclude that Garrett did not extend to this situation, we would be sanctioning the anomalous result that the wife and child of a seaman disabled by the shipowner's negligence would benefit from the wardship concept if the seaman had executed a release, while the widow and child of a seaman killed aboard ship, induced to release claims through overreaching on the part of the shipowners, would have the burden of proving the invalidity of the release. 48 We believe that survivors of deceased seamen can often be in weak bargaining positions and, in circumstances such as these, are in need of the admiralty court's protection. We also note that the survivors are often persons from far away lands, in poor position to protect themselves. We believe that the survivors of the deceased seaman, Pratik Chatterjee, seeking the protection of the wardship doctrine, have already been recognized by the shipowners as being entitled to whatever is owed Pratik Chatterjee and they should be permitted to stand in his shoes and be cloaked with the protection of Garrett's careful scrutiny. The survivors of deceased seamen are no less susceptible to overreaching, coercion and deception than the seamen themselves, the special wards of the court. Thus, for the sake of the seamen, this court holds that Garrett should control in this type of situation. This shifts the burden of proof onto the shipowner to show that the release was valid. 49 Thus, we must next determine whether the shipowners sustained the heavy burden of proving that the Chatterjee settlement and release was in fact executed freely, without deception or coercion, and that it was made ... with full understanding of ... rights. Garrett, 317 U.S. at 248, 63 S.Ct. at 252. If there was fraud ..., the settlement had no binding effect as to [Mrs. Chatterjee], and she is at liberty to assert ... a death claim in the limitation of liability action. Chatterjee v. Due, 511 F.Supp. 183, 187 (E.D.Pa.1981) (emphasis added). 13