Opinion ID: 418133
Heading Depth: 1
Heading Rank: 3

Heading: limitation of bonanza's liability

Text: 38 Bonanza, now a dormant corporation, was, in 1976 and 1977, primarily engaged in land development. Headquartered in Conroe, Texas, it maintained marketing offices in Houston and field offices in the Houston area where its land development projects were located. At its most active stage, between 1970 and 1975, Bonanza had about eight corporate officers and about 30 payroll employees. 39 The Aqua Safari played a minor role in Bonanza's operations. Bonanza acquired the vessel at a U.S. Marshal's sale in 1973 and refurbished it to make it suitable for entertaining corporate customers and employees. At the time Bonanza purchased the Aqua Safari, the corporation already owned a deck boat, a houseboat, a 36-foot vessel, and several small boats that were used for corporate entertainment. Because Bonanza planned to make limited use of the Aqua Safari, the vessel was also fitted out for scuba diving. The Aqua Safari's first captain, Louis Schaeffer, arranged charters to scuba diving groups and, as a standby or service vessel, to other companies. Two corporate employees, Don Apostolo and Carl Bridges, Jr., had supervisory authority over the Aqua Safari's operations, and Jim Fuller, Bonanza's president and sole shareholder, had ultimate control over the vessel. 40 In 1976, Schaeffer left Bonanza's service, and Fuller hired Gary Freeman, who had previously worked on the vessel, as its captain. Freeman, Fuller thought, would be able to attract charters through business contacts. The Aqua Safari's charters were not adequate to support the vessel, and Fuller became disillusioned with his purchase. At one point, he leased the vessel to Freeman and drew up a contract with him for the sale of the Aqua Safari to a corporation Freeman had organized. These arrangements ended, however, when Freeman could not raise enough money to follow through on the leasing and purchase agreements. Freeman resumed his role as a non-salaried employee of the corporation, and Bonanza continued to absorb the Aqua Safari's losses. Fuller had no day-to-day interest, however, in the Aqua Safari's affairs. 41 Freeman was authorized to seek out and negotiate charters independently. He had carte blanche to carry out scuba diving charters. For other charters, he had to get approval from Fuller, Apostolo, or Bridges. Although Bonanza's bank required Fuller to authorize payment of the Aqua Safari's maintenance and repair bills, and Freeman sought Fuller's approval beforehand as a matter of course, Fuller had no maritime expertise, so Freeman decided what purchases and repairs would be made and when they would be made. He orchestrated a major overhaul of the Aqua Safari just before Conoco chartered the vessel. Freeman also hired the Aqua Safari's crew on a per-trip basis, without consulting Fuller, to meet the needs of each occasion. 42 In determining the scope of the protection afforded by limitation of liability, we must consider the social and economic purpose that this exculpatory device serves. We have noted that the impetus behind passage of the Limitation of Liability Act of 1851, 46 U.S.C. Sec. 183 et seq. (1976), was to ensure that American shipping attracted investment capital that the threat of unlimited exposure might divert to England, which already provided for limited liability. University of Texas Medical Branch at Galveston v. United States, 557 F.2d 438, 441 (5th Cir.1977), cert. denied, 439 U.S. 820, 99 S.Ct. 84, 58 L.Ed.2d 111 (1978). See 23 Cong.Globe, 31st Cong., 2d Sess. 714 (Remarks of Sen. Davis, Feb. 26, 1851); id. at 715 (Remarks of Sen. Hamling, Feb. 26, 1851). Observing that the Act was passed in an era before the corporation, with its limited shareholder liability, had become the standard form of business organization and before the present range of insurance protection was available, 557 F.2d at 454, we have called the Act now hopelessly anachronistic. Id. at 441. In 1975, Professors Gilmore and Black likewise traced a discernible judicial trend to narrow the Limitation Act by construction. G. Gilmore & C. Black, The Law of Admiralty 878 (2d ed. 1975). This does not empower us to disregard the statute for Congress, by failing to repeal it, has indicated that it must still be applied. It does, however, affect whether interpretation should be expansive or constricted. 43 A corporation is prevented from limiting its liability by the act of a managing agent when the negligence is that of an executive officer, manager or superintendent whose scope of authority includes supervision over the phase of the business out of which the loss or injury occurred .... Coryell v. Phipps (The Seminole), 317 U.S. 406, 410-411, 63 S.Ct. 291, 293, 87 L.Ed. 363, 367 (1943). The district court held that Bonanza was not entitled to limit its liability to Conoco for the cost of the Aqua Safari's removal because Freeman was a managing agent of Bonanza with respect to the vessel's operations. His negligence had, therefore, been with Bonanza's privity or known to it. 44 The district court's finding that Freeman was a managing agent of Bonanza is not clearly erroneous. Fed.R.Civ.P. 52(a); Pullman-Standard v. Swint, 456 U.S. 273, 102 S.Ct. 1781, 72 L.Ed.2d 66 (1982). Freeman was responsible for maintaining the Aqua Safari in seaworthy condition, hiring its crew, and arranging its charters, subject to the approval of his superiors. Bonanza was principally engaged in land-based operations, such as land development. Freeman was in virtual full charge of Bonanza's maritime venture, the operation of the Aqua Safari. In addition, Bonanza paid Freeman a portion of the Aqua Safari's profits, not a fixed salary. The extent of Freeman's duties and the minimal supervision he received from the corporate officers suffice to support the finding that he was its managing agent. As stated in The Erie Lighter 108, 250 F. 490, 494 (D.N.J.1918), a 'managing officer' is ... anyone to whom the corporation has committed the general management or general superintendence of the whole or a particular part of its business .... 45 The relevant question, though, is not simply, Was Freeman a managing agent? The navigational negligence of a master who also occupies a managerial position in a corporation does not of itself deprive the corporation of the right to petition for limited liability. The Marie Palmer, 202 F. 1023 (5th Cir.1913), aff'g 191 F. 79 (E.D.Ga.1911). The master's mistake is not the fault of the shipowner simply because the master has been given broad and unlimited agency powers over the operation and maintenance of the vessel. Admiral Towing v. Woolen (The Tug Companion), 290 F.2d 641, 648 (9th Cir.1961). It must be established that Freeman was a managing agent with respect to the field of operations in which the negligence occurred. The evidence suffices to support the district court's implicit conclusion that he was. 46 Because a corporation operates through individuals, the privity and knowledge of individuals at a certain level of responsibility must be deemed the privity and knowledge of the organization, else it could always limit its liability. Coryell v. Phipps (The Seminole), 317 U.S. 406, 410-11, 63 S.Ct. 291, 293, 87 L.Ed.2d 363, 367 (1943). Where the level of responsibility begins must be discerned from the circumstances of each case. 47 Freeman was more than master, and he had greater responsibility than operation and maintenance of the vessel. 15 Although Freeman was neither a shareholder nor an officer of the close corporation, 16 Fuller granted him so much autonomy in the management of the vessel that the district court was not in error in attributing Freeman's privity and knowledge to the corporation. See Avera v. Florida Towing Corp., 322 F.2d 155, 163 (5th Cir.1963) (acknowledging persuasiveness of theory that the scope of authority delegated by an owner to a subordinate servant may be so broad as to justify imputing privity as well as knowledge); Silver Line, Ltd. v. United States (The Silverpalm), 94 F.2d 776, 780 (9th Cir.1937) (shipowner may not escape liability by giving managerial functions to employed person acting as his agent); In re Great Lakes Transit Corp., 81 F.2d 441, 444 (6th Cir.1936) (privity and knowledge may be imputed to owner if someone in charge had general authority to act for owner); In re New York Dock Co., 61 F.2d 777, 779 (2d Cir.1932) (scope of authority delegated to general superintendent so broad that his privity and knowledge was in law that of owner); The Trillora II (Petition of Guggenheim), 76 F.Supp. 50, 52 (E.D.S.C.1947) (when owner delegates full authority to agent, he is bound by acts of agent and will be held in privity by knowledge of agent). The corporate authority delegated to Freeman with respect to the Aqua Safari's operations was so complete that Freeman's privity and knowledge was that of the corporation, and his negligence precludes limitation.