Tetra Applied Technologies, L.P. v. Louisiana Workers Compensation Corp.

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
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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
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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”).
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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
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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
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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
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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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