Opinion ID: 2513200
Heading Depth: 1
Heading Rank: 3

Heading: Clary Owners' Request for Limitation of Liability

Text: The Clary Owners maintain that the district court erred in denying them a limitation of liability under the Limitation of Liability Act because the record did not show that they were aware that the Clary sometimes operated without a lookout. The Cargo Claimants counter that the Clary Owners made no attempt to satisfy their burden under the Limitation of Liability Act, and that the record supports the district court's factual determination. The Limitation of Liability Act provides: (a) In general.... [T]he liability of the owner of a vessel for any claim, debt, or liability described in subsection (b) shall not exceed the value of the vessel and pending freight.... (b) Claims subject to limitation. Unless otherwise excluded by law, claims, debts, and liabilities subject to limitation under subsection (a) are those arising from any embezzlement, loss, or destruction of any property, goods, or merchandise shipped or put on board the vessel, any loss, damage, or injury by collision, or any act, matter, or thing, loss, damage or forfeiture, done, occasioned, or incurred, without the privity or knowledge of the owner. 46 U.S.C. § 30505 (emphasis added). Thus, [i]nstead of being vicariously liable for the full extent of any [damages] caused by the negligence of the captain or crew employed to operate the ship, the owner's liability is limited to the value of the ship unless the owner himself had `privity or knowledge' of the negligent acts. In re City of N.Y., 522 F.3d 279, 283 (2d Cir. 2008). Whether a vessel owner is entitled to limit its liability requires a two-step analysis. `First, the court must determine what acts of negligence ... caused the accident. Second, the court must determine whether the ship owner had knowledge or privity of those same acts of negligence....' In re Moran Towing Corp., 166 F.Supp.2d 773, 775 (E.D.N.Y. 2001) (quoting In re Keys Jet Ski, Inc., 893 F.2d 1225, 1230 (11th Cir.1990)). The cargo claimant bears the initial burden of proving negligence, after which the burden shifts to the shipowner to prove lack of knowledge or privity. Id. Both privity and knowledge turn[ ] on the facts of particular cases. Coryell v. Phipps, 317 U.S. 406, 411, 63 S.Ct. 291, 87 L.Ed. 363 (1943); see also In re Complaint of Messina, 574 F.3d 119, 125 (2d Cir.2009) (stating that the determination of whether acts of negligence are within the knowledge or privity of the owner is a fact specific undertaking (internal quotation marks omitted)). `Privity or knowledge' can be actual or constructive. Either way, the term usually implies some degree of culpable participation or neglected duty on the shipowner's part; that, for example, it committed a negligent act ... or through the exercise of reasonable diligence could have prevented the commission of the act.... Carr v. PMS Fishing Corp., 191 F.3d 1, 4 (1st Cir.1999) (internal citation omitted). Where the shipowner is a corporation, privity and knowledge means privity and knowledge by a managing agent, officer, or supervising employee of a ship. Otal III, 2008 WL 2844019, at . But the captain's negligence or navigational errors are not within the owner's knowledge or privity if the vessel's owner has selected a competent captain. Id. In this case, negligence has already been proven. The limitation of liability determination turns on whether the Clary Owners have proved lack of knowledge or privity with respect to the acts of negligence leading to the collisionspecifically, whether they knew that the Clary failed to keep a proper lookout. [2] In addressing the Clary Owners' limitation of liability argument, the district court cited trial testimony of the Clary's Second Officer Toncic that the standard practice on the ships operated by Mineralien [Clary's manager of the vessel] was for lookouts to work all day and then be put on standby for call up to the bridge if there was trouble. Id. at . The court found that Toncic's testimony established that the Clary did not always have a person on watch from 12 a.m. to 4 a.m. but, if someone was needed, Toncic knew who should be called on the bridge. They were not always on the bridge. Id. Without a citation to the record, the court then stated that If a lookout worked at night, he would be paid overtime. Id. at . That sentence was immediately followed by a reference to the Cargo Claimants' argument that the Clary's shoreside owners would have been aware of whether overtime was being logged and paid for lookout duty on a regular nightly basis. Id. The district court went on to state: The Cargo Claimants further note that instead of supervising the Clary's officers to ensure that they posted lookouts as required, the master was asleep in his room at the time of the collision. Trial Tr. 434. The Clary did not bring the master of the Clary to trial to testify in support of the request for limitation of liability. Therefore, this Court agrees with the Cargo Claimants that the Clary's owners were in privity with and had knowledge of the fact that the Clary at least sometimes failed to keep a proper lookout during the night. Id. The court briefly discussed the Clary's COLREG violations, and concluded that even though the vessel had mandatory operating procedures that required lookouts to be posted in restricted visibility, the Cargo Claimants have shown that the Clary's owners should have known that the Clary sometimes failed to keep a proper lookout. Id. The court held that the Clary Owners could not limit their liability under the Limitation of Liability Act. Id. at . The only factual finding made by the district court to support its conclusion that the Clary Owners had privity or knowledge of the Clary's failure to keep a proper lookout was its statement that [i]f a lookout worked at night, he would be paid overtime. Id. at . The court then adopted the Cargo Claimant's argument that the Clary Owners would have known if lookouts had actually been posted by reviewing the books that would have shown that overtime had been paid. The record in this regard does not support the district court's factual finding. The only reference in the trial transcript to possible overtime for seamen on the Clary occurred during Toncic's testimony, when he attempted to distinguish between the duties of Able-Bodied Seamen and Ordinary Seamen. The Clary Owners and Cargo Claimants each quote selected snippets of that testimony in their briefs. In order to understand the gist of what Toncic said, we set forth his testimony at length: Q (Attorney): You testified that there are three ABs [Able Bodied Seamen] and, I believe, two ordinary seamen on your ship? A (Toncic): Yes. Q: Their[ [3] ] normal duties are day workers? A: Day workers at sea, doing the watches in port, and they can do watches at sea, if required. THE COURT: Each is assigned to a shift? I mean, does one have the 12 to four and then four to eight and next eight to 12. THE WITNESS (Toncic): The ABs, they are assigned to the ships. And ordinary seamens, they were working as a day man. Sometimes, not sometimes.... They are not doing the watches, working as the day man, but if they are required, they can be called to do watches. THE COURT: If they're looking out andI'm just not clear what you're saying. When you say they're day men, what does that mean? THE WITNESS: That means they start in day, in the morning and they working all the day up until the 5:00. They're not doing the watches. THE COURT: They're not doing the watch? THE WITNESS: They are not doing the watch. Q: Is it true that you do not ordinarily call them to stand lookout nor helmsman during the night when you're at sea because you have to pay overtime if they work the day after that? A: Can you say again, please? Q: Yes. Is it true that you don't ordinarily call them up on the bridge during the night because if you do, they have to be paid overtime on their day watch? A: No. They don't have to be paid overtime. I think that was all include in the contract, some overtime hours. Q: Can you explain that? A: Yeah. The day, the contract says they have eight hours. It was only eight hours. Normal work eight hours, which most on the ship is 24 hours. So they can be called for some overtime without any problem. Q: You can call them for overtime without any problem? A: Yeah, we can call them for overtime. This is not a problem. Q: And is that standard on all the ships operated by Mineralien? A: Say it again. Q: Is that standard practice on all the ships that you sailed on for the same managers? A: If it's still the practice, what, to call them Q: To have them work all day and then just put them on standby for call up if you run into trouble. A: They are doing as the day man when they are required, they, they were in watches. So it's not that they are there all the time.    THE COURT: Let me get this day worker clear, since I wish I had that opportunity 50 years ago. Are you saying that these people, they work a regular nine to five or eight-to-five day and then there is no assigned person to look out from eight to 12 at night or midnight to 4 a.m. every single night? Is that true? THE WITNESS: We have to work in, those two seamen and three ABs and the ordinary seamans, they are day master, working starting in the morning and finishing in the evening. THE COURT: And they go to sleep? THE WITNESS: Yes. And three ABs, they are assigned to the watches. Each one in the line officers, one AB is assigned to the, to the ship mate's watch, another is with the second officer, the third is with the third officer. THE COURT: So there's always one on watch 12 to four? THE WITNESS: No, but if we need it, we know who should be called on the bridge. They were not always on the bridge. THE COURT: There are times when there's no able body who is looking out at the bow? THE WITNESS: There is sometimes, yes.    THE COURT: I'm sorry to keep bringing this up. It sort of brings back old times. Is there no rule that requires an ordinary to do watches? In other words, it's really basically a day worker occupation, these days? Do you understand what I mean? In other words, the ordinaries as a regular course of business, throughout the shipping business, do not have assigned watches that they must be available for, like the 12 to four or four to eight? THE WITNESS: ABs, yes but ordinary THE COURT: No, no, ordinaries. That's where I came in. THE WITNESS: No. I mean we can call them if we really need them. THE COURT: No. I got that part. But basically throughout the industry, they go to bed at 5:00, they eat dinner and THE WITNESS: Five, 6:00. In the special circumstances, we can call them, like if it's required by the master, or if the special occasions considering the traffic or the weather, they can be called. But usually there is during the night one watch, one lookout with the officer, at the open sea and this one is the AB. And in the port and during the, approaching the port wherever the pilot is or in the port, there is a difference. Despite Toncic's obvious problems in understanding and expressing himself in English, his descriptions of the respective duties of Ordinary Seamen and Able-Bodied Seamen and of the Clary's overtime pay practices are clear enough for our purposes. In essence, Toncic described a work scenario in which the two Ordinary Seamen assigned to the Clary would work an eight hour day shift. They would perform watches when the vessel approached port or while it was in port, and they could be asked to perform a watch while the vessel was at sea, if needed. Ordinary Seamen did not have to be paid overtime if they were occasionally asked to perform a watch at sea because their contract allowed them to work some overtime hours without requiring additional payment. On the other hand, the three Able-Bodied Seamen on the vessel were not considered day workers. They were assigned to watches at sea as a matter of course, although they did not always physically appear on duty. Nothing in Toncic's testimony suggested that Able Bodied Seamen were paid overtime while on watch: because such watches constituted an assigned duty, and because Able-Bodied Seamen were not limited to an eight-hour workday, it can be inferred they would not be paid overtime for watch duty. Thus, Toncic's testimony indicates that only Ordinary Seamen could be paid overtime, but they were not; and there was no testimony that Able-Bodied Seamen were paid overtime. We do not find support in the record for the district court's finding of fact that all lookouts were paid overtime (regardless of which type of seaman they were), and thus that finding is clearly erroneous and must be set aside. See Canizzo v. Farrell Lines, Inc., 579 F.2d 682, 686 (2d Cir.1978) (Where no substantial evidence supports a factual determination, it is clearly erroneous, and properly set aside.). This error is significant. The thrust of the Cargo Claimants' argument, which found favor with the district court, was that the Clary Owners could have known that the Clary was not posting lookouts had they consulted the overtime records, because A.B.s (Able Bodied Seamen) who stand watch would have been paid overtime. From that fact, the Cargo Claimants argue the following: because the Able-Bodied Seamen were not being paid overtime, the Clary Owners could have discovered that fact and therefore the Owners had the requisite knowledge, cognizable under the Limitation of Liability Act of the Clary's negligence, i.e., that neither on previous nights nor on the night of the collision were Able-Bodied Seamen standing watch. Without a factual connection to overtime payments or lack thereof, nothing in the district court's analysis of limitation of liability demonstrates that the Clary Owners had the requisite knowledge that lookouts were not being posted. The district court mentioned that the master was asleep in his room at the time of the collision instead of supervising the vessel's officers to ensure that lookouts were properly posted. The Cargo Claimants, however, do not rely on this fact to argue that the Clary Owners could or should have known what had occurredparticularly since the district court appeared to accept the Clary Owners' argument that they had selected a competent master and had no knowledge of any pattern of navigational errors by him. Otal III, 2008 WL 2844019, at . The question then becomes whether the district court's clear error is sufficient for us to reverse the judgment and direct that a judgment be entered holding the Clary Owners not liable under the Limitation of Liability Act. We hold that there are insufficient facts for us to make such a determination. The district court accepted the Cargo Claimants' erroneous argument from the lack of overtime records about what the Clary Owners should have known about the negligent failure to post lookouts, rather than addressing what the Clary Owners had proved that they did not know about that negligence. As a result, the court never made a specific finding about whether (putting aside the erroneous argument based on overtime) the Clary Owners had met their burden under the statute that they were without knowledge of the negligence that contributed to the collision. As the record evidence does not compel a conclusion either way about that question, it is for the district court as factfinder, and not for us, to make that finding. The Clary Owners insist that they satisfied their burden proving lack of privity or knowledge because the trial testimony of two witnesses and numerous documents showed that they employed a competent crew and the Clary's watch officer was, as the district court found, properly educated and trained and was fully qualified and competent. Id. They tout their mandatory operating procedures (requiring lookouts to be posted), weekly management team meetings, audits, restricted visibility checklists and other safeguards as proof that they satisfied their burden. Given that conflicting inferences can be drawn from the evidence of certain actions taken by the Clary Owners, coupled with the absence of evidence about whether those actions were adequately followed up, it is for the finder of fact to decide what inferences should be drawn from that state of the evidence about the Clary Owners' knowledge. Accordingly, we must remand for the district court to make a specific factual determination of the issue, but free of the error that infected its previous conclusion. That determination shall be based on and limited to a review of the existing record.