Court Opinion

ID: 34844
Source: CourtListenerOpinion
Date Created: 2010-04-25 19:21:02+00
Date Added: 2024-06-11T17:06:31.642347
License: Public Domain

United States Court of Appeals
                                                               Fifth Circuit
                                                            F I L E D
                                                            March 24, 2004
                      Revised April 5, 2004
                                                        Charles R. Fulbruge III
                 UNITED STATES COURT OF APPEALS                 Clerk
                      FOR THE FIFTH CIRCUIT

                     _______________________

                           NO. 03-30719
                     _______________________

    In Re: In the Matter of: TETRA APPLIED TECHNOLOGIES L P,
     as owner or, alternatively owner Pro Hac Vice of Tetra
    Rig No 6 for Exoneration from or Limitation of Liability

      - - - - - - - - - - - - - - - - - - - - - - - - - - -

                TETRA APPLIED TECHNOLOGIES, L.P.,
         As Owner, or, Alternatively, Owner Pro Hac Vice
                       of Tetra Rig No. 6,

                                               Plaintiff-Appellee,

                             versus

          LOUISIANA WORKERS COMPENSATION CORP., et. al.
                                                      Defendants,

                         TODD J. LEGER,

                                               Defendant-Appellant.

_________________________________________________________________

          Appeal from the United States District Court
              for the Western District of Louisiana
________________________________________________________________

Before KING, Chief Judge, JONES and SMITH, Circuit Judges.

EDITH H. JONES, Circuit Judge:
                This appeal arises in the context of a federal court

action filed by a drilling rig owner (Tetra) seeking exoneration

from,      or   limitation   of,    liability    under    the    Limitation   Act,

46 U.S.C. App. § 183.        The district court refused to lift its stay

of state court proceedings because plaintiff Leger refused to

stipulate to exclusive federal court jurisdiction over Tetra’s

claim of exoneration from liability.                 We reverse and remand, and

reiterate our prior holding that an exoneration stipulation is not

required to protect a shipowner’s rights under the Limitation Act.

                                   I.    BACKGROUND

                On February 20, 2001, Todd Leger was injured in an

incident on an inland drilling rig owned and operated by Tetra

Applied Technologies, L.P. (“Tetra”).            Leger sued Tetra and others

for damages in state court.              Tetra answered the state action but

also       filed   a   complaint    in     federal    district    court   seeking

exoneration from, or limitation of, its liability with regard to

Leger’s claims.1 Initially, the district court enjoined the filing

or prosecution of any actions arising out of Leger’s accident.

                Leger moved to dissolve the injunction and submitted

stipulations which provided that:                (1) Leger “concede[s] that

[Tetra] is entitled to and has the right to litigate all issues

       1
            Later, the Louisiana Worker’s Compensation Commission (“LWCC”) also
filed a claim against Tetra to recover any funds paid to Leger as a result of the
February 2001 incident.

                                           2
relating to limitation of liability . . . in this Court;” (2) Leger

would “not seek . . . in other federal or state courts, any

judgment or ruling on the issue of Tetra’s right to limitation of

liability;” (3) Leger would “consent to waive any claim of res

judicata relevant to the issue of limitation of liability based on

any judgment that the state court may render;” and (4) Leger would

not “seek to enforce any excess judgment or recovery insofar as it

may expose [Tetra] to liability in excess of $725,000 pending the

adjudication of the complaint of limitation of liability.”                  On

March 21, 2003, the district court lifted its stay of proceedings.

Upon reconsideration, however, the court reinstated the stay,

finding that Leger had not offered sufficient stipulations with

regard   to    exoneration.     Leger     now   appeals,   arguing   that   an

exoneration stipulation is not required where the plaintiff has

stipulated to exclusive federal jurisdiction over the limitation of

liability issues and has agreed to waive any res judicata claims

with regard to the state court’s resolution of issues relating to

the limitation of liability.

                              II.   DISCUSSION

A.   Standard of Review

              This court reviews a district court’s decision to lift a

stay for abuse of discretion.       See In re In the Matter of Tidewater

Inc., 249 F.3d 342, 345 (5th Cir. 2001) (“In re Tidewater”).                At

                                      3
the same time, however, the issue whether a set of stipulations

adequately protects a shipowner’s rights under the Limitation Act

is a question of law reviewed de novo.      Id.

B.   The Limitation Act and the Saving to Suitors Clause

          The Limitation Act provides that

     [t]he liability of the owner of any vessel . . . for any
     act, matter, or thing, loss, damage or forfeiture, done,
     occasioned, or incurred, without the privity or knowledge
     of [the] owner or owners . . . shall not . . . exceed the
     amount or value of the interest of [the] owner in such
     vessel, and her freight then pending.

46 U.S.C. App. § 183(a) (2000).     The Supreme Court has noted that

the Limitation Act is “not a model of clarity,” in part because

Congress, “having created a right to seek limited liability . . .

did not provide procedures for determining the entitlement.” Lewis

v. Lewis & Clark Marine, Inc., 531 U.S. 438, 447 (2001).        Because

it found the Act to be “incapable of execution” without further

instructions   to   the   courts,   the   Supreme   Court   promulgated

procedural rules to govern limitation actions.        See id. (citing

Norwich Co. v. Wright, 80 U.S. 104, 121 (1872); Supplementary Rules

of Practice in Admiralty, 13 Wall. at xxi-xiv).      The procedure for

a limitation action is now contained in Supplemental Admiralty and

Maritime Claims Rule F, which provides that a “complaint may demand

exoneration from as well as limitation of liability.” Fed. R. Civ.

P. Supp. R. F(2).

                                    4
             Courts have had difficulty interpreting the interaction

between the Limitation Act and the “saving to suitors” clause of

the Judiciary Act of 1789.            The Judiciary Act of 1789 provides that

“the district courts shall have original jurisdiction, exclusive of

the courts of the States, of . . . any civil case of admiralty or

maritime jurisdiction, saving to suitors in all cases all other

remedies     to    which    they      are   otherwise     entitled.”          28   U.S.C.

§ 1333(1) (2000) (emphasis added).                    Tension exists between the

saving to suitors clause and the Limitation Act because the former

affords suitors a choice of remedies, while the latter gives

shipowners        the    right   to    seek       limitation    of    their   liability

exclusively in federal court.                 See Lewis, 531 U.S. at 448.              The

tension is highlighted to the extent that Rule F allows a district

court   to   “enjoin       the     further        prosecution    of    any    action   or

proceeding against the [owner] or the [owner’s] property with

respect to any claim subject to limitation in the action.”                         FED. R.

CIV. P. SUPP. R. F(3).

             The Supreme Court addressed this tension in a pair of

related cases.          See Langnes v. Green, 282 U.S. 521, 541-43 (1931);

Ex parte Green, 286 U.S. 437, 439-40 (1932).                    The Court first held

that where a single claimant sues a shipowner in state court and

the owner files a petition for limitation of liability in federal

court, the federal court must allow the claimant’s action to

proceed in state court while retaining jurisdiction over the

                                              5
limitation of liability action.             See Langnes, 282 U.S. at 541-43.

Later, the Court held that the federal court may enjoin the state

court proceeding unless the claimant agrees to withdraw any state

submissions relating to the limitation of liability.               See Ex parte

Green, 286 U.S. at 439-40.        The Court extended this approach to

allow the state action to proceed in cases with multiple claimants

where the total value of the claims does not exceed the value of

the   limitation   fund,   so    long   as     the   claimants    stipulate   to

exclusive federal jurisdiction over the limitation of liability

issues.   See Lake Tankers Corp. v. Henn, 354 U.S. 147, 151-52

(1957).

           This    court   has   recognized      that   “claims    may   proceed

outside the limitation action (1) if they total less than the value

of the vessel, or (2) if the claimants stipulate that the federal

court has exclusive jurisdiction over the limitation of liability

proceeding and that they will not seek to enforce a greater damage

award until the limitation action has been heard by the federal

court.”   Odeco Oil & Gas Co. v. Bonnette, 4 F.3d 401, 404 (5th Cir.

1993). Thus, if the necessary stipulations are provided to protect

the rights of the shipowner under the Limitation Act, the claimants

may proceed in state court.        See Lewis, 531 U.S. at 454 (where a

district court “satisfies itself that a vessel owner’s right to

seek limitation will be protected, the decision to dissolve the

injunction is well within the court’s discretion”).

                                        6
                The foregoing principles apply to limitation actions.                         A

shipowner’s claim for exoneration is different from limitation.

Exoneration raises defenses to liability while limitation seeks to

confine         the    vessel      owner’s     liability,        which      is    otherwise

determined, to no more than the value of the vessel.                         Accordingly,

the question at issue in this case is whether the district court

abused its discretion by requiring Leger to stipulate to exclusive

federal     jurisdiction           over     Tetra’s     claim    of    exoneration       from

liability before it would dissolve the stay of the state court

proceedings.

C.    In re:      Tidewater and Lewis v. Lewis & Clark Marine, Inc.

                In In re Tidewater, this court explicitly held that an

exoneration stipulation is not required under the Limitation Act

before      a    district         court     dissolves     a     stay   of    state      court

proceedings.           See In re Tidewater, 249 F.3d at 346.                 In doing so,

this court noted that the Limitation Act “itself does not expressly

provide the shipowner with a right to exoneration,” and that the

use    of   the        permissive       phrase,     “[t]he      complaint        may   demand

exoneration           as   well    as   limitation      of    liability,”        in    Rule   F

indicates that the issue of exoneration is not exclusively reserved

to the federal courts.                  See id. at 346-47; FED. R. CIV. P. SUPP.

R. F(2) (emphasis added).                 In addition, because the Limitation Act

does not         explicitly       provide     for   a   right     of   exoneration,       any

                                               7
potential conflict exists not between the Limitation Act and the

saving to suitors clause, but rather between Rule F and the saving

to suitors clause.   See id. at 347.     The rules of procedure cannot,

however, enlarge the substantive rights conferred on shipowners by

the Limitation Act.     The court concluded that the exoneration-

related language in Rule F cannot abridge the rights secured by the

saving to suitors clause.     See id.

          Tetra argues that the Supreme Court’s nearly contempora-

neous holding in Lewis undermines the legal analysis of that case.

Lewis was decided nearly two months before this court’s ruling in

In re Tidewater but not cited in it.      A close examination of Lewis

actually undermines Tetra’s argument.       In Lewis, a district court

dissolved an injunction after the injured party stipulated that the

claim did not exceed the limitation fund; the shipowner could

relitigate any issues relating to the limitation of liability in

federal court; and he waived any res judicata effect of the state

court judgment on limitation issues.            See Lewis, 531 U.S. at

441-42.    The    district   court   retained    jurisdiction   over   the

limitation action to protect the shipowner’s right to limitation.

See id. at 442.    The Eighth Circuit held that the district court

had abused its discretion in dissolving the stay, finding, inter

alia, that the shipowner had a right to seek exoneration from

liability, not merely limitation, exclusively in federal court.

See Lewis v. Lewis & Clark Marine, Inc., 196 F.3d 900, 908-10 (8th

                                     8
Cir. 1999), rev’d and remanded by 531 U.S. 438 (2001).               The Supreme

Court   reversed   the   Eighth    Circuit,     reasoning    that     while   the

Limitation Act was “designed to encourage investment and protect

vessel owners from unlimited exposure to liability,” the Court’s

earlier decisions explained that “‘the Act is not one of immunity

from liability but limitation of it.’”           See Lewis, 531 U.S. at 453

(quoting Lake Tankers, 354 U.S. at 152).           Hence, although “vessel

owners may contest liability in the process of seeking limited

liability . . . [t]he Act and the rules of practice . . . do not

create a freestanding right to exoneration from liability in

circumstances where limitation of liability is not at issue.”                 Id.

           Tetra argues that where limitation of liability is at

issue, however, there is a right to exoneration, such that a

stipulation   must    confirm     exclusive     federal   jurisdiction        over

exoneration. Leger, on the other hand, asserts that limitation and

exoneration issues may be “neatly divided” and that exoneration is

outside the exclusive jurisdiction of the federal courts.                At one

level, Tetra is correct:        vessel owners do have a right to seek

exoneration    from   liability     in    the   context     of   a   limitation

proceeding    in   federal   court.       See    Lewis, 531 U.S.   at    453

(recognizing that a shipowner may contest liability in the process

of seeking limited liability).        Exoneration is not wholly separate

from limitation.

                                      9
                But Tetra mistakenly contends that this right may only be

vindicated        through   a    stipulation    that    exclusively    reserves

exoneration issues to the federal court.               If anything, Lewis cuts

in the opposite direction.          The Supreme Court there held that the

district court did not abuse its discretion by dissolving a stay

where the shipowner’s right to limitation was adequately protected

by the injured party’s stipulations, even without a stipulation

addressing federal court jurisdiction over exoneration. See id. at

453-54 (noting that when stipulations such as those made in Lewis

are agreed upon, “nothing more [is] required to protect [the

shipowner’s] right to seek a limitation of liability”). The Eighth

Circuit’s helpful decision in Riverway Harbor Service, St. Louis,

Inc.,     263 F.3d 786,    790-92   (8th   Cir.    2001),   confirms   this

understanding of Lewis.2         In Riverway, the Eighth Circuit held that

where an injured party agrees to reserve limitation of liability

issues to the federal court, to waive any res judicata claim

related to limitation, and to refrain from enforcing any state

court judgment in excess of the limitation fund prior to the

federal proceeding, the requirements of Lewis are met.3                      See

Riverway, 263 F.3d at 791-92.

      2
            Following oral argument in the Eighth Circuit, Riverway was held in
abeyance pending the outcome of the Supreme Court’s ruling in Lewis.        See
Riverway, 263 F.3d at 790.
      3
            The injured party in Riverway also agreed to a certain priority order
for claims and that the limitation fund accurately reflected and equaled the
value of the vessels involved. See Riverway, 263 F.3d at 791-92.

                                         10
          In the present case, the district court, reconsidering

its original dissolution of the stay, failed to cite this court’s

decision in Tidewater.       Moreover, it distinguished Lewis because

although Leger had agreed to nearly the same set of stipulations as

those in Lewis, he did not stipulate to the adequacy of the

limitation fund. Importantly, however, Leger did stipulate that he

would not seek to enforce any state court judgment in excess of the

limitation fund. This stipulation accomplishes the same purpose as

stipulating    to    the   adequacy   of   the   fund;    it   protects    the

shipowner’s right to cap his liability at the amount of the fund,

pending the limitation proceeding.         See, e.g., Odeco Oil, 4 F.3d at

405 n.7 (where “a stipulation covers all claimants and assures [the

shipowner] would never have to pay more than the limitation fund if

the admiralty court so determines,” the rights of the shipowner

under the Limitation Act are protected).

          In   the    course   of   advocating   the     position   that   the

district court adopted on reconsideration, Tetra’s major concern

was not that its liability would exceed the fund, but that its

rights would not be protected if Leger could recover any amount in

state court.    However, the Supreme Court rejected just such an

argument in Lewis, holding that the right to seek limitation was

adequately protected by stipulations that allowed the federal

proceeding to go forward after a determination on the merits by a

                                      11
state court and with ultimate recovery limited, at a maximum, to

the total value of the fund.        See Lewis, 531 U.S. at 453-54.

           The Supreme Court in Lewis relied upon the district

court’s   exercise     of   its   discretion      to    determine   that   the

shipowner’s rights were adequately protected by the stipulations

agreed to by the injured party.          See id. at 454.      In the instant

case, however, the district court’s reconsideration order, finding

that   Leger’s    stipulations    did    not   adequately   protect   Tetra’s

rights, was premised on an error of law.               Because the proffered

stipulations were sufficient to protect the rights of the shipowner

to limitation, the court’s denial of Leger’s right to a choice of

forum under the saving to suitors clause constitutes an abuse of

discretion.      See In re Two “R” Drilling Co., Inc. v. Rogers, 943
F.2d 576, 578 (5th Cir. 1991) (“Where the claimant concedes the

admiralty court’s exclusive jurisdiction to determine all issues

relating to the limitation of liability, the district court should

lift any stay against the state proceeding.”); Valley Line Co. v.

Ryan, 771 F.2d 366, 373 (8th Cir. 1985) (“[I]t is an abuse of the

court’s discretion to fail to dissolve the injunction against other

legal proceedings, and thus deprive a claimant of his choice of

forum.”); accord Riverway, 263 F.3d at 792.

                             III.   CONCLUSION

                                        12
          For the reasons discussed above, we REVERSE and REMAND

this action to the district court with instructions to dissolve its

stay of the state court proceedings.

          REVERSED and REMANDED.

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