Magnolia Marine Transport Co., Inc. v. Laplace Towing Corp.

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 91-3154
IN THE MATTER OF: MAGNOLIA MARINE
TRANSPORT CO., INC.
MISSISSIPPI MARINE TRANSPORT COMPANY,
Third Party Plaintiff,
versus
LAPLACE TOWING CORPORATION, ET AL.,
Third Party Defendants,
BARBARA BORDELON FRYE and
E.N. BISSO & SONS, INC.,
Claimants-Appellants,
versus
MAGNOLIA MARINE TRANSPORTATION, INC., ET AL.,
Defendants-Appellees.
* * * * *
MAGNOLIA MARINE TRANSPORTATION, ET AL.,
Plaintiffs-Appellees,
versus
BARBARA BORDELON FRYE, ETC., and
E.N. BISSO & SONS, INC.,
Defendants-Appellants.
Appeals from the United States District Court for
the Eastern District of Louisiana
(June 25, 1992)
Before REAVLEY, HIGGINBOTHAM and DEMOSS, Circuit Judges.
REAVLEY, Circuit Judge:
The district court has decided that the underwriters of a
vessel owner's marine insurance policy has standing under the
Limited Liability Act to demand that the federal court interpret
whether the policy limited the underwriters' liability to the
amount of the owner's liability. The district court then refused
to permit claimants to proceed in state court against the owner
and underwriters without specifically conceding the right of the
underwriters to litigate policy interpretation in the admiralty
court. The district court consequently stayed prosecution of
claims against the shipowner and the underwriters in the state
court, and declined to dismiss the underwriters' declaratory
judgment suit. We hold that underwriters may not require this
federal accommodation, and that limitation of liability protects
only the shipowner.
I. BACKGROUND
On February 3, 1988, on the Mississippi River south of Baton
Rouge, the M/V SAM LEBLANC collided with a barge in tow of the
M/V ERGONOT and then with a second vessel. Captain Joseph Frye,
master of the SAM LEBLANC, drowned as a result of this accident.
On February 17, 1988 Barbara Frye (Frye), the captain's widow,
sued E.N. Bisso & Son, Inc. (Bisso), her late husband's employer,
in Louisiana state court. She soon joined as a defendant in that
action Magnolia Marine Transport Co., Inc. (Magnolia), owner of
2
the ERGONOT and owner pro hac vice of a barge that struck the SAM
LEBLANC. She later joined Magnolia's marine insurance
underwriters in a direct action under Louisiana law. Magnolia
filed its suit in admiralty to limit liability in the federal
district court in August 1988, and Frye and Bisso timely filed
claims. The district court set the limitation trial for August
27, 1990. The Louisiana court set Frye's suit for trial on
February 19, 1991.
On August 22, 1990 the federal court stayed the limitation
action pending the resolution of Frye's state-court suit. Two
days later, after Frye had notified the court that she planned to
file a direct action in state court, Magnolia and its
underwriters filed a declaratory judgment suit in the same
federal district court seeking a declaration that Magnolia's
underwriters are entitled to limitation of liability under Crown
Zellerbach Corp. v. Ingram Indus., Inc., 783 F.2d 1296 (5th
Cir.), cert. denied, 479 U.S. 821 (1986). The declaratory
judgment suit was consolidated with the limitation suit.
Pursuant to the motions of Frye and Bisso to stay or dismiss the
declaratory judgment suit, the court considered whether the
insurers were entitled under Magnolia's policy to limit their
liability to Magnolia's liability.
In January 1991, one month before the scheduled state-court
trial date, the district court ruled that the interpretation of
Magnolia's insurance policy is "necessarily a function of" the
limitation suit, and that moving ahead with the federal
3
declaratory judgment suit would not jeopardize Frye's right to
common law remedies under the saving-to-suitors clause. Magnolia
Marine Transport Co. v. Frye, 755 F. Supp. 149, 152 (E.D. La.
1991). The court also found the stipulations of Frye and Bisso
defective for failing to protect Magnolia's underwriters and to
concede that the federal court is the only proper forum to
determine whether the underwriters policy permits them to limit
liability to the shipowner's liability. Id. at 152-53. The
court enjoined the state-court trial of claims against Magnolia
and its underwriters and denied the claimants' motion to dismiss
the declaratory judgment suit. Id.
II. DISCUSSION
The Limited Liability Act, 46 U.S.C. §181 et seq. (the Act,
or the Limitation Act), provides that the liability of a
shipowner for any damage arising from a maritime casualty which
is occasioned without the privity or knowledge of the shipowner
shall not exceed the value of the vessel at fault together with
her pending freight. 46 U.S.C. §183(a). Federal courts have
exclusive admiralty jurisdiction of suits brought under the Act,
but "saving to suitors . . . all other remedies to which they are
otherwise entitled." 28 U.S.C. § 1333. This statutory framework
has created "recurring and inherent conflict" between the saving-
to-suitors clause of §1333, with its "presumption in favor of
jury trials and common law remedies," and the "apparent exclusive
jurisdiction" vested in admiralty courts by the Act. In re
4
Dammers & Vanderheide & Scheepvaart Maats Christina B.V., 836
F.2d 750, 754 (2d Cir. 1988).
When a shipowner files a federal limitation action, the
limitation court stays all related claims against the shipowner
pending in any forum, and requires all claimants to timely assert
their claims in the limitation court. Id. at 755. The court
takes jurisdiction to entertain those claims without a jury,
Waring v. Clarke, 46 U.S. (5 How.) 441, 458-60, 466, 12 L. Ed. 226
(1847), and ensures that the shipowner who is entitled to
limitation is not held to liability in excess of the amount
ultimately fixed in the limitation suit (the limitation fund).
Lake Tankers Corp. v. Henn, 354 U.S. 147, 152-53, 77 S. Ct. 1269,
1272 (1957). The court's primary concern is to protect the
shipowner's absolute right to claim the Act's liability cap, and
to reserve the adjudication of that right in the federal forum.
Langnes v. Green, 282 U.S. 531, 543, 51 S. Ct. 243, 247 (1931).
Lake Tankers makes "crystal clear" that the Act is directed
at maritime misfortunes where the losses claimed exceed the value
of the vessel and freight. 354 U.S. at 151, 77 S.Ct. at 1272.
Where the claim does not exceed that value, the saving-to-suitors
clause dictates that the admiralty court must allow suits pending
against the shipowner in a common law forum, in this case the
state court, to proceed. Id., at 150-54; 77 S.Ct. at 1271-73;
Dammers & Vanderheide, 836 F.2d at 755. But even when the claim
does exceed that value, the claimant still may prefer the state
court, for example if the claimant possesses a related claim
5
against a party who is not protected by the Act. See, e.g., In
re Complaint of McDonough Marine Service, Div. of Marmac Corp.,
749 F. Supp. 128, 130 (E.D. La. 1990) (claim against barge
manufacturer). Consequently, the claimant may decide to reduce
the claim pending against the shipowner in the admiralty court to
the value of the limitation fund.
The claimant who wishes to pursue a state court claim in
this manner must first make certain stipulations in the admiralty
court to preserve the shipowner's rights. The claimant must
stipulate that the admiralty court reserves exclusive
jurisdiction to determine all issues related to the shipowner's
right to limit liability, and that no judgment against the
shipowner will be asserted to the extent it exceeds the value of
the limitation fund. Upon the claimant's filing sufficient
stipulations, the admiralty court should allow the claimant to
proceed even when the claim exceeds the limitation fund.
Langnes, 282 U.S. at 540-41, 51 S.Ct. at 247; In Re Two "R"
Drilling Co., 943 F.2d 576, 578 (5th Cir. 1991).
When the shipowner is beset by multiple claimants, admiralty
courts also are concerned that there be one federal forum for the
resolution of all competing claims. See In re Complaint of
Midland Enterprises, Inc., 886 F.2d 812, 815 (6th Cir. 1989).
But even in multiple-claimant cases, admiralty courts still
should allow state court claims to proceed under proper
stipulations. See Dammers & Vanderheide, 836 F.2d at 755-60.
Multiple claimants may reduce their claims to the equivalent of a
6
single claim by agreeing and stipulating as to the priority in
which the claimants will receive satisfaction against the
shipowner from the limited fund. S&E Shipping Corp. v.
Chesapeake & O. R. Co., 678 F.2d 636, 644 (6th Cir. 1982). Under
such stipulations, "the state court proceeding could have no
possible effect on the [shipowner's] claim for limited liability
in the admiralty court . . . ." Lake Tankers, 354 U.S. at 152-
53, 77 S. Ct. at 1272-73. In that circumstance, "the provisions
of the Act . . . do not control. Id.
7
Frye and Bisso filed stipulations in this case,1 and
Appellees Magnolia and its underwriters do not contest that these
stipulations adequately protect Magnolia's interests. Rather,
the underwriters urge that the stipulations are incomplete
because the claimants failed to concede the underwriters' right
to litigate their liability in the limitation action. The
underwriters further contend that the federal court has exclusive
jurisdiction to interpret their marine insurance policy. The
district court agreed with the underwriters' arguments, and
therefore decided to lift the stay of the limitation suit,
1
The claimants filed the following stipulations:
1. Claimants stipulate that in the event there is
judgment(s) in any state court actions, in excess of
$230,000, which is the value that . . . Magnolia has
placed on the limitation fund, plus pending freight, in
no event will the claimants, separately or together,
execute or enforce any judgment(s) insofar as same
would expose Magnolia to liability in excess of
$230,000, plus pending freight.
2. Claimants concede that this court has exclusive
jurisdiction to determine Magnolia's statutory right,
as vessel owner or owner pro hac vice, to exoneration
from or limitation of liability under 46 U.S.C. § 183
et seq., and, relatedly, the proper value of the
limitation fund.
3. Claimants waive res judicata with respect to all
claims relating to the issue of Magnolia's statutory
right of exoneration from or limitation of liability,
based on any judgment(s) in state court.
4. Claimants stipulate that the claim of E.N. Bisso &
Son, Inc. shall have irrevocable priority over all
other claims.
5. Claimants stipulate that Barbara Bordelon Frye's
claim shall have irrevocable priority over all other
claims, once E.N. Bisso & Son's claim is satisfied.
6. Claimants specifically reserve their right to
challenge in this court the value of the limitation
fund, which Magnolia has averred is $230,000, plus
pending freight.
8
proceed with the declaratory judgment suit, and enjoin the
claimant's state court suit against Magnolia and the
underwriters.
A. THE ADMIRALTY PROCEEDING AND THE UNDERWRITERS
We first note that the Act itself affords the underwriters
no right of limitation. Maryland Casualty Co. v. Cushing, 347
U.S. 409, 421-22, 433, 74 S. Ct. 608, 615 (1954). See also 3
Benedict on Admiralty § 45 at 5-37 (December 1989) (only "owner"
or "charterer" may limit liability). Therefore, the underwriters
have no statutory basis to demand shelter in the claimants'
stipulations which are required to protect the shipowner's
rights. Two "R" Drilling, 943 F.2d at 578; Dammers &
Vanderheide, 836 F.2d at 756-57. A maritime insurer's right to
limit its liability depends upon the terms of its contract of
insurance.
The district court stated its opinion that the
claimants cannot stipulate that their claims do not
exceed the value of Magnolia Marine's vessel without
also applying that stipulation to Magnolia Marine's
insurers . . . [and] a resolution of the policy
language in favor of the insurers would mean those
insurers have the same standing to limit their
liability as do their assureds.
Magnolia Marine, 755 F. Supp. at 152-53 (footnote omitted)
(emphasis added). The district court erroneously assumed that a
liability-limiting term in a marine insurance policy gives the
underwriters standing under the Act to assert limitation
9
defensively and require protective stipulations from claimants.2
Because the underwriters' rights are purely contractual, and the
validity of the liability-limiting term in the policy at issue is
disputed, the underwriters are not entitled to a stipulation in
their favor. Only if the disputed term were already adjudicated
in their favor could the underwriters colorably demand such a
stipulation, based on the judgment interpreting the policy and
not on the Act.
The underwriters also argued below that they are entitled to
a federal forum for interpretation of the alleged liability-
limiting term of Magnolia's insurance policy. On appeal, the
underwriters repeatedly refer to the exclusive jurisdiction of
federal courts to interpret marine policies. It is true that
admiralty jurisdiction encompasses issues arising from marine
insurance contracts. Insurance Co. v. Dunham, 78 U.S. (11 Wall.)
1, 24, 20 L. Ed. 90, 97 (1871); Offshore Logistics Services., Inc.
v. Mutual Marine Office, Inc., 639 F.2d 1168, 1170 (5th Cir. Unit
A 1981); International Sea Food Ltd. v. M/V Campeche, 566 F.2d
482, 485 (5th Cir. 1978); but cf. Wilburn Boat Co. v. Fireman's
Fund Ins. Co., 348 U.S. 310, 313-14, 75 S. Ct. 368, 374 (1955)
2
Crown Zellerbach, read in the context of Olympic Towing
Corp. v. Nebel Towing Co., 419 F.2d 230 (5th Cir. 1969), which
Crown Zellerbach overruled, establishes that a liability-limiting
term in a marine insurance policy gives rise to a valid policy
defense, and that a direct-action plaintiff may not successfully
challenge such a policy term on the grounds that the term
contravenes either Louisiana's direct action statute, or
Louisiana's law regarding personal defenses. 783 F.2d at 1301-
02. Crown Zellerbach does not hold that an insurer is entitled
to literal standing under the Limitation Act.
10
(noting broad regulatory power Congress reserved to states
concerning insurance). And the claimants do not dispute that the
underwriters' policy in this case is a contract within the
admiralty jurisdiction.
The district court concluded that the underwriters can
demand the federal forum to interpret their policy, but we know
of no authority for this proposition. Rather, federal courts
have jurisdiction over contract actions, including those arising
from marine insurance policies, concurrent with any other common
law courts having jurisdiction for that purpose. See 1 Benedict
on Admiralty §122 at 8-6, §123 at 8-10 (1992). And "[s]tate law
governs construction of marine insurance contracts except where
it is displaced by admiralty law." Employers Ins. of Wausau v.
Trotter Towing Corp., 834 F.2d 1206, 1210 (5th Cir. 1988). Thus,
both the Louisiana court and the federal court have jurisdiction
to interpret Magnolia's insurance policy.
The underwriters also argue that policy interpretation
belongs in federal court because this case poses a conflict
between admiralty law and state law. The underwriters contend
that this conflict arises because direct action could allow the
claimants to recover damages against the underwriters in excess
of the limitation fund if their policy lacks a liability-limiting
term. Interpretation of the disputed term thus brings this
conflict to bear. And where admiralty law and state law
conflict, federal law must prevail. Wilburn Boat, 348 U.S. at
11
314, 75 S. Ct. at 370. Consequently, the underwriters argue,
this conflict mandates exclusive federal jurisdiction.
We disagree. To date, the Supreme Court has found no
conflict between the Louisiana direct action statute and federal
law. Cushing, 347 U.S. at 423, 74 S.Ct. at 615. And we think
that, because the Limitation Act protects only the owner, the Act
does not preclude the claimant from recovering more than the
value of the limitation fund from a party not entitled to claim
the Act's protection. If an insurer fails to contract for the
right to limit liability, its direct action liability may exceed
the value of the limitation fund without transgressing admiralty
law.3 But interpreting the Louisiana marine insurance contract
at issue in this declaratory judgment action is a task for the
Louisiana courts.
The underwriters further argue that the interpretation of a
marine insurance policy is necessarily related to limitation, and
therefore should be undertaken by the admiralty court. While the
stipulations filed in this case properly acknowledge exclusive
admiralty jurisdiction of all issues "related to" limitation, we
think that this language compels the federal forum only as to
issues affecting the shipowner's right to limitation, such as
ownership, privity, knowledge, and valuation. See Guillot v.
Cenac Towing Co., 366 F.2d 898, 906 (5th Cir. 1966) (noting
3
While Louisiana law may dictate special contours for the
drafting of an effective liability-limiting policy term, we find
it inconceivable, as a matter of contract law, that a shipowner
and an insurer would not attempt to include such a term.
12
hazard that extra-limitation proceeding may trespass on "the
exclusive domain of the Admiralty in adjudicating . . . privity
and knowledge . . . ."). And the fact that an insurance policy's
liability-limiting term may refer to the federal limitation
court's decision does not make the interpretation of that term
"necessarily related" to the owner's limitation rights so as to
bring policy interpretation within the exclusive federal
jurisdiction.
Nor do we think that Crown Zellerbach affords insurers the
right to an exclusive federal forum or to a concursus of claims.
The district court said:
Magnolia and its insurers argue that the policy
language is necessarily a limitation issue. If the
state court determines that the [relevant language] is
contained in the policy, the state proceeding can go no
further, since Magnolia Marine and its insurers would
all then be entitled to attempt to limit their
liability in this court. [citing Crown Zellerbach].
Conversely, in the event that the state court
determines the [relevant language] is not contained in
the policy, Magnolia and its insurers would be subject
to a potential judgment without having had the benefit
of attempting to limit liability, an exclusively
federal remedy. . . . Depending on the construction of
the particular policy language, an insurer may be
subject to the protections of the Limitation Act . . .
.
Magnolia Marine, 755 F. Supp. at 152 (emphasis added). While the
district court recognized the problem of protecting the
shipowner's insurance when a claimant has a direct action, see
Cushing, 347 U.S. at 423-27, 74 S.Ct. at 615-17 (Clark, J.,
concurring) (describing problem), the district court erred in
13
attempting to solve that problem by merging Magnolia's statutory
limitation rights with the insurers' contractual rights.4
The claimants' stipulations sufficiently protect Magnolia's
rights and acknowledge the proper federal jurisdiction.
Therefore the district court should allow the claimants to
proceed with their state court action, under the saving-to-
suitors clause. But because the stipulations do not protect
Magnolia from the potential depletion of its insurance coverage,
the claimants must first take steps to preserve that coverage, as
we discuss next.
C. PRESERVATION OF SHIPOWNER'S INSURANCE COVERAGE
4
The court cited McDonough Marine, 749 F. Supp. at 133,
in support of its conclusion that the insurers enjoy Limitation
Act standing. In that case, wrongful-death plaintiffs sued the
barge owner and the barge manufacturer in state court. The
manufacturer filed its cross-claim against the owner in the
owner's subsequent limitation action. The manufacturer then
asked the admiralty court to stay the state court claims against
the manufacturer because of the exclusive jurisdiction and
concursus provisions of the Act. The McDonough court determined
that it could not enjoin proceedings "in which claimants seek
remedies against parties not subject to the Limitation Act's
protections." Id. at 133.
The district court in this case also noted McDonough's
discussion of In re Brent Towing Co., 414 F. Supp. 131 (N.D. Fla.
1975). Brent Towing dealt with claimants' efforts to lift the
stay of their state court claims against a vessel insurer in
Florida, which does not permit a separate direct action against
insurers. Id. at 132-33. Apparently lacking the necessary
stipulations, the Brent Towing court was forced to stay
claimants' state court proceedings against the owner, and then
against the insurer as well because the insurer could not be sued
apart from the owner. So neither Brent Towing nor McDonough
supports the underwriters' right to demand limitation, concursus,
exclusive federal jurisdiction, or stay of state court
proceedings in a case where stipulations adequately protect the
shipowner.
14
Although Congress intended the Limitation Act to benefit the
shipping industry, it declined to extend protection to many
categories of industry actors. Cushing, 347 U.S. at 421-22, 433,
74 S. Ct. at 615, 621. See also 3 Benedict on Admiralty § 45 (Act
does not protect time charterers, ship agents, masters, seamen,
etc.). In fact, the Act does not promise shipowners freedom from
liability, but only limited liability. Lake Tankers, 354 U.S. at
152-53, 77 S. Ct. at 1272-73.
Magnolia argues that it may contract for freedom from
liability by purchasing insurance, and therefore insurance policy
interpretation is necessarily related to limitation. Indeed, a
majority of the Cushing court recognized that a shipowner is
entitled to insure its investment, and that depriving the
shipowner of its insurance would conflict with the policy of
limited liability. See Cushing, 347 U.S. at 418-19 (Frankfurter,
J.); id at 424 (Clark, J., concurring). We recognize that
Magnolia might lose insurance protection if Louisiana furnishes
Frye a direct action.5 Assuming that the underwriters somehow
are unable to limit their liability contractually, and assuming
that Magnolia is entitled to limitation, then a judgment in the
direct action for damages against the underwriters, for an amount
exceeding both the limitation fund and the policy coverage, could
5
We profess no opinion on the availability of direct
action against a marine underwriter in Louisiana under the type
of contract at issue in this case, because that question is not
before us on appeal.
15
encroach upon the coverage available to Magnolia.6 If this
judgment is entered before the limitation action, the judgment
could effectively deplete Magnolia's coverage below the amount of
the limitation fund. Cushing, 347 U.S. at 418-19, 74 S.Ct. at
613; Guillot, 366 F.2d at 904.
Recognizing the problem, this court has safeguarded
shipowners' policy rights in a direct action case by following
Justice Clark's recommended procedure.7 To avoid depletion of
the owner's coverage, this court has required the limitation
6
If an underwriter's policy capped coverage at $100,000
and the admiralty court limited the insured shipowner's liability
to $5,000, then a claim of $110,000 might endanger coverage in a
direct action in the following manner. If the state-court direct
action proceeded first to a judgment of liability and damages in
the amount of $110,000, and the insurer paid the policy limit of
$100,000 in satisfaction of that judgment, then the underwriter
would have no further liability to the shipowner. The claimant
could then proceed in the admiralty court against the shipowner
to recover the additional $10,000. If the admiralty court then
set the shipowner's liability at $5,000, the shipowner would be
liable to pay the claimant $5,000, but could no longer recover
from the underwriter. The shipowner would have received the
protection of the Limitation Act, but not the protection of his
insurance coverage because it was depleted in the direct action.
7
Justice Clark protected the shipowner's coverage by
"requir[ing] that the limitation proceeding be concluded first
and the owner's liability settled under it. The . . .
[underwriters] could then discharge this liability, to the extent
their policies covered it, by paying into the limitation
proceeding the proper sum. The door would then be left open for
prosecution of direct actions against the insurance companies on
the remaining coverage of the policies. 347 U.S. at 425. In
Coleman v. Jahncke Service, Inc., 341 F.2d 956, 960 (5th Cir.
1965), this court recognized that Cushing requires, if nothing
else, that shipowners be protected from losing their insurance
coverage when that coverage is threatened by a direct action.
And Cushing "establishes a procedure to be followed by lower
courts in handling similar cases until the Supreme Court further
clarifies the issues." Ex parte Tokio Marine & Fire Ins. Co.,
322 F.2d 113, 115-16 n.6 (5th Cir. 1963).
16
action to precede the direct action. Guillot, 366 F.2d at 905.
Structuring the litigation according to Cushing and Guillot
avoids potential unfairness by giving the limitation court the
first opportunity to allocate insurance proceeds to cover as much
risk as the shipowner contracted to shift to insurers. And this
approach avoids expanding the Limitation Act's coverage beyond
what Congress has stated and our authorities have sanctioned.
Consequently, we require the district court to continue the
stay of Frye's state court suit against Magnolia and its
underwriters, until the court has taken such steps as it deems
necessary to protect Magnolia's contractual rights. We recognize
that Justice Clark's Cushing chronology is not the only possible
strategy, and that other methods may achieve an equivalent
result. For example, the court might permit claimants to
stipulate Magnolia's priority claim to insurance proceeds in the
event that Magnolia is entitled to limitation and the insurers
are subject to direct action.
D. THE DECLARATORY JUDGMENT ACTION
We sua sponte consider whether we have authority to review
the district court's denial of the claimants' motion to dismiss
the declaratory judgment suit. Originally, Magnolia's
underwriters filed a separate suit under the Declaratory Judgment
Act, claiming the right to the federal forum for the
interpretation of Magnolia's policy. The district court
consolidated that suit with Magnolia's suit for limitation of
liability. In the consolidated proceeding, the district court
17
entered its order granting the injunction from which the
claimants appeal. This same order also vacated the stay of the
limitation proceeding and denied, on the merits, the claimants'
motion to dismiss the declaratory judgment suit. In this order,
the district court explained that it decided to reopen the
limitation proceedings and enjoin the state court proceedings for
three reasons: (1) the underwriters have the right to seek
limitation of their liability in federal court; (2)
interpretation of the underwriters' insurance policy is
necessarily a function of the limitation proceeding; and (3) the
claimants failed to file stipulations protecting the
underwriters' limitation rights. All three of these reasons are
predicated upon the right of the underwriters to their
declaratory judgment as a product of their limitation of
liability rights. We have rejected that predicate. The ground
for denying the dismissal of the declaratory judgment suit, being
precisely the same, must be likewise rejected in this decision.
28 U.S.C. §1292(a)(1) provides the basis for appeal of
interlocutory injunctions entered in the course of limitation
proceedings, Treasure Salvors, Inc. v. Unidentified Wrecked and
Abandoned Sailing Vessel, 640 F.2d 560, 565 (5th Cir. 1981), and
the claimants brought this appeal under that authority. And "an
order granting or refusing an injunction brings before the
appellate court the entire order, not merely the propriety of
injunctive relief, and [the appellate court] may decide the
merits" so long as concerned "only with the order from which the
18
appeal is taken." Marathon Oil Co. v. United States, 807 F.2d
759, 764 (9th Cir. 1986). But our jurisdiction is not limited to
the specific order appealed from, Deckert v. Independence Shares
Corp., 311 U.S. 282, 287, 61 S. Ct. 229 (1940), and we may review
all matters which "establish the immediate basis for granting
injunctive relief." See C. Wright, A. Miller, E. Cooper & E.
Gressman, Federal Practice and Procedure §3921 (1977).8
In this case, the district court initially enjoined the
state court proceedings according to the Limitation Act. The
court lifted this injunction, but later reinstated it after
deciding that the underwriters could claim the Act's protection
for themselves and litigate policy coverage in federal court as
part of Magnolia's limitation suit. To consider the claimants'
8
Federal appellate courts have invoked the doctrine of
pendent appellate jurisdiction to consider issues contained in
collateral orders that are related to an appealable order, once
the court has taken jurisdiction of the appealable order and
found "sufficient overlap in the factors relevant to [the
appealable and nonappealable] issues to warrant [the] exercise of
plenary authority over the appeal." San Filippo v. U.S. Trust
Co., 737 F.2d 246 (2nd Cir. 1984), quoting Sanders v. Levy, 558
F.2d 636, 643 (2nd Cir. 1976), rev'd on other grounds,
Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 98 S. Ct. 2380
(1978); Scarlett v. Seaboard Coast Line R. Co., 676 F.2d 1043,
1052 (5th Cir. 1982). In Marathon Oil Co. v. United States, 807
F.2d 759, (9th Cir. 1986), the court ruled that orders separate
from an injunction-granting order would be considered on appeal
if "inextricably bound up" with the injunction. Id. at 764. An
order may be inextricably bound up with the injunction if the
injunction requires the appellant to comply with that order, Id.,
or if "separate consideration would involve sheer duplication of
effort by the parties and [the] court," Patterson v. Portch, 853
F.2d 1399, 1403 (7th Cir. 1988), or if the propriety of the
injunction depends on the correctness of issues resolved in the
other order summary, as in Sierra Club v. Department of
Transportation, 948 F.2d 568, 571 (9th Cir. 1991) (judgment
issues upon which injunction was grounded are appealable).
19
appeal of the injunction under these circumstances, we have no
alternative but to consider whether Magnolia's underwriters had
legal justification to demand a federal forum and limitation of
liability. The fact that the underwriters raised these issues
pursuant to a declaratory judgment did not preclude the district
court from considering these issues in granting the injunction,
and does not now prevent us from reviewing the district court's
decision to grant it. The district court's erroneous sanction of
the underwriters' claims was the immediate basis for enjoining
other proceedings against Magnolia. The fact that the district
court's order denying the motion to dismiss the separate
declaratory judgment suit would not be appealable apart from the
injunction does not affect our ruling. Because we think that the
district court erred in denying the claimants' motion to dismiss,
we reverse.9
The district court's decision to grant declaratory relief is
discretionary, and we review that decision for abuse of
discretion. Mission Ins. Co. v. Puritan Fashions Corp., 706 F.2d
599, 601 & n.2 (5th Cir. 1983). We first note that the district
court erred as a matter of law when it refused to dismiss the
declaratory judgment action based on the conclusion that the
underwriters have the same standing as the insured shipowner to
9
We think that our jurisdiction of the injunction allows
us to resolve all of the issues raised by the declaratory
judgment suit. We choose to reverse rather than to remand a suit
with no controversy remaining.
20
limit liability, and to demand the federal forum to adjudicate
policy limitation.
In Rowan Cos. v. Griffin, 876 F.2d 26 (5th Cir. 1989), this
court set out the factors for district courts to consider in
deciding whether to grant declaratory relief, or to stay or
dismiss a declaratory judgment suit in deference to a state court
action involving the same parties and issues. The court may deny
declaratory relief
because of a pending state court proceeding in which
the matters in controversy between the parties may
fully litigated, . . . because the declaratory
complaint was filed in anticipation of another suit and
is being used for the purpose of forum shopping, . . .
because of possible inequities in permitting the
plaintiff to gain precedence in time and forum, . . .
or because of inconvenience to the parties or the
witnesses.
Id. at 29 (citations omitted). "Fundamentally, the district
court should determine whether the state action provides an
adequate vehicle for adjudicating the claims of the parties and
whether the federal action serves some purpose beyond mere
duplication of effort." PPG Indus., Inc. v. Continental Oil Co.,
478 F.2d 674, 682 (5th Cir. 1973), citing Brillhart v. Excess
Ins. Co., 316 U.S. 491, 62 S. Ct. 1173 (1942). The district court
should consider denying declaratory relief to avoid "[g]ratuitous
interference with the orderly and comprehensive disposition of a
state court litigation" if "the claims of all parties . . . can
satisfactorily be adjudicated in [the state court] proceeding."
Brillhart, 316 U.S. at 495, 62 S.Ct. at 1176.
21
In this case, Frye's notice to the court of her intent to
file a direct action against the underwriters in state court
immediately preceded and prompted the underwriters' filing of
their declaratory judgment suit. The underwriters are parties to
the state court suit, and the issues pertaining to liability,
direct action, and policy limitation may be fully adjudicated in
that action. These parallel suits may duplicate the litigation
of a difficult, unresolved question of Louisiana law regarding
the availability of direct action under a marine insurance policy
such as the one at issue in this case. And litigation of policy
coverage in the state court could be structured in a manner that
will not unduly inconvenience the parties.10
Divested of their contentions regarding Limitation Act
standing and exclusive federal jurisdiction, the underwriters
demand declaratory judgment solely to obtain their preferred
forum in which to anticipate a defense that they could adequately
raise against Frye in Louisiana court. This is inadequate to
support the decision to entertain a declaratory judgment. See,
e.g., Mission, 706 F.2d at 602-03 (no declaration where
convenient alternative forum capable of resolving issues in
dispute); Dresser Indus., Inc. v. Ins. Co. of North America, 358
F. Supp. 327, 330 (N.D. Tex.), aff'd, 475 F.2d 1402 (5th Cir.
10
We anticipate that the federal court will resolve the
limitation action first and, if necessary, take steps to protect
the shipowner's insurance coverage. Then the state court will
try the issues of policy limitation, liability, direct action,
and damages.
22
1973) (no declaratory judgment suit merely to obtain change of
tribunal).
In this case, the district court was aware that a state
court suit was pending which would involve the same parties and
issues as the proposed declaratory judgment action, and that
interpretation of Magnolia's insurance policy is governed by
state law. The district court abused its discretion when it
chose not to stay or dismiss the declaratory judgment action to
avoid duplicative and piecemeal litigation.
CONCLUSION
In sum, we hold that the district court erred by enjoining
the prosecution of Frye's Louisiana suit, for the reason that the
claimant's stipulations did not extend to the shipowner's
underwriters. The district court further abused its discretion
by declining to stay or dismiss the underwriters' declaratory
judgment action. We confirm, however, that Magnolia's
contractual rights should be protected if necessary by enjoining
the state court suit until the limitation action is resolved.
We need not address whether Louisiana law affords Frye a
direct action against the underwriters on a policy of marine
insurance. The issue was not presented to the trial court and is
not properly before us.
The injunction remains, pending remand and reconsideration
by the district court.
REVERSED AND REMANDED
23
DeMOSS, Circuit Judge, DISSENTING:
In the published opinion (Magnolia Marine Transport Co. v.
Frye, 755 F. Supp. 149 (E.D. La. 1991) from which this appeal has
been taken, the Trial Court concluded its opinion by taking the
following actions:
"IT IS ORDERED that the motion of defendants in
Civil Action No. 90-3053 to dismiss the declaratory
judgment action is DENIED.
"IT IS FURTHER ORDERED that the stay previously
ordered in Civil Action No. 89-1361 on August 22, 1990,
is VACATED and clerk is DIRECTED to re-open Civil
Action No. 89-1361 and restore said case to the Court's
docket.
"IT IS FURTHER ORDERED that all other proceedings
in this matter, including the pending state court
action, involving Magnolia Marine and/or its insurers
are hereby ENJOINED pursuant to Rule F(3) of the Sup-
plemental rules for Certain Admiralty and Maritime
Claims, pending further orders of this Court.
"IT IS FURTHER ORDERED that plaintiff insurers in
the declaratory judgment action file their motion for
summary judgment on the issue of whether the insurance
policy language allows them to limit their liability
within thirty (30) days of receipt of this Order."
Because I believe the Trial Court was correct in ordering
each of these actions, but perhaps did not articulate sufficient
reasons for its actions, I respectfully DISSENT from the forego-
ing opinion of the panel majority and file the following explana-
tion:
A. Denial of the motion to dismiss the declaratory
judgment action
While ordinarily a denial of a motion to dismiss is not an
appealable order, I accept for the purposes of this appeal the
24
portion of the panel opinion which sustains our appellate juris-
diction of this action by the Trial Court under 28 U.S.C.
1292(a)(1). I disagree completely, however, with the panel
opinion that the Trial Court abused its discretion by refusing to
dismiss the declaratory judgment action.
First of all as the Trial Court stated in footnote 2 on page
151 of its published opinion:
"Because the Court is, by this Order, lifting
the stay of the limitation case and enjoining
further state court proceedings, the motion
to dismiss the declaratory judgment suit on
the basis of the pending state court action
is moot."
That makes eminent good sense to me. To dismiss the
declaratory action, and at the same time enjoin the prosecution
of the state court proceeding in which allegedly the same issues
contemplated by the declaratory judgment action could be tried,
certainly would not contribute to the efficient disposition of
the legal issues between the parties. More importantly, there
were unique circumstances involved in this case which are not
involved in the typical case where appellate courts have reviewed
the circumstances under which the federal district court may
entertain a declaratory judgment suit: i.e. (i) at the time the
declaratory judgment action was filed in the U.S. District Court,
the limitations of liability action of Magnolia Marine was
already pending in that same U.S. District Court; and the
consequent fact that all of the parties, other than the plaintiff
underwriters in the declaratory judgment action, were already
present before the same U.S. District Court; (ii) the fact that
25
from August 3, 1988, when Magnolia Marine first filed its
limitation of liability suit until August 22, 1990, the state
court proceeding was stayed by reason of the automatic stay order
issued by the U.S. District Court and that all discovery
depositions between the parties, regarding the circumstances of
the collision and the insurance coverages involved, were taken
pursuant to subpoenas issued by the U.S. District Court in the
limitation of liability proceedings; (iii) the fact that at the
time the marine underwriters filed their declaratory judgment
action in the federal court, they had not been brought into the
state court proceeding by Plaintiff Frye; (iv) the fact that the
state district court and the federal district court are separated
by only 10 blocks in downtown New Orleans, which is the venue
selected by the plaintiff Frye; and (v) the fact that whether in
the federal district court or the state district court, the
issues regarding policy coverage in the declaratory judgment
action would be governed by the same state law, i.e., the
Louisiana Direct Action Statute.
For all of these reasons I think it was clearly within the
discretion of the Trial Court to choose to entertain the
declaratory judgment action which is precisely what the Federal
Declaratory Judgment Statute says he may do.
B. Reopening of the Limitation of Liability Proceeding
The second action which the Trial Court took is not really
addressed in the panel opinion, except to the extent that it is
necessarily the other side of the coin of the dispute about the
26
Trial Court's issuance of the stay of the state court proceeding.
However, one cannot read the portion of the Trial Court's opinion
on page 151 which relates to the circumstances of the conference
on August 22, 1990, without sensing that the Trial Court feels
that counsel for all parties failed to properly advise the Court
as to the propriety of the actions which the Court took on that
day.
C. The Stay of the State Court Proceeding
In assessing the propriety of the Trial Court's action in
staying the state court proceedings, there are two circumstances
which are determinative and must be kept clearly in mind: first,
in exercising the injunctive power, the Trial Court relied
expressly and exclusively on Rule F(3) of the Supplemental Rules
for Certain Admiralty and Maritime Claims and not on any general
injunctive power derivative from the pendency of the declaratory
judgment action in the same consolidated matter as the panel
opinion infers; and second, there were two claimants in the
limitation of liability proceeding, Mrs. Frye for the death of
her deceased husband Joseph, and Bisso for the damages to its
vessel; and the aggregate of their claims exceeded the value of
the Magnolia Marine vessel which is the subject of the limitation
of liability proceeding. In short, the exercise of the
injunctive power was attendant to the standard and historic
powers given to the federal district court in limitation of
liability proceedings; and this was what is characterized as a
multiple-claims-inadequate-fund case. Since the decision in
27
Pershing Auto Rentals, Inc. v. William C. Gaffney, et al., 279
F.2d 546 (5th Cir. 1960, John R. Brown), the law of this Circuit
has been fixed that trial of all claims must occur in the
limitation of liability proceeding when multiple claims either
exceed the fund or there is reasonable apprehension that they
will. There are only two special circumstances when a federal
court may permit a claimant or claimants to first try the issue
of liability vel non and damages in actions outside of the
limitation of liability proceeding: first, where there is only
one claimant, Langnes v. Green, 282 U.S. 531, 51 Sup. Ct. 243, 75
L. Ed. 520); and second, where there are multiple claimants who
stipulate that their claims in the aggregate do not exceed the
value of the vessel tendered in the limitation of liability
proceeding, Lake Tankers Corp. v. Henn, 354 U.S. 147, 77 Sup. Ct.
1269, 1 L. Ed. 2d 1246 (1957). The Trial Court in our present
case recognized that neither of these special situations
permitting trial outside of the limitation of liability
proceeding exist in the present case. If the Trial Court had
simply terminated its discussion at that point, his ruling on
this action would have been unassailable, but the Trial Court
went on to discuss the need for the stipulations filed in this
case to address rights of the marine underwriters. It was that
additional language which prompted the panel majority to spend an
inordinate amount of time explaining (i) why marine underwriters
are not entitled to the benefits of the Limitation of Liability
Act; (ii) why the marine underwriters are not entitled to
28
concursus of claims; and (iii) why the District Court erred in
"merging Magnolia's statutory limitation rights with the
insurer's contractual rights," all of which is unnecessary and
immaterial. Bottom line, this Circuit has never approved the
form and content of a stipulation to be filed by a claimant in a
multiple-claim-
inadequate-fund case because all of those cases are to be first
tried in the limitation of liability proceeding. To the extent
that the panel opinion seems to say that the Trial Court should
devise an alternate form of stipulation, I suggest that the panel
is making new law inconsistent with settled precedent in this
Circuit.
Furthermore, the stay order as issued by the Trial Court
prohibits state court actions against "Magnolia Marine and/or its
insurers". There is clear and express authority in this Circuit
for that injunctive relief applying to both the shipowner,
Magnolia Marine, and its marine insurers. Guillot v. Cenac
Towing Co., 366 F.2d, 898 (1966). Speaking for this Court in
that case, Judge John R. Brown stated:
"That means that as to the direct action
against the insurers of the shipowner as
such, the injunction was proper and the trial
thereof must be stayed until disposition of
the limitation proceedings." at p.905.
Consequently, even it the panel majority is correct that the
Trial Court erred in not dismissing the marine insurers
declaratory judgment action, the Frye and Bisso claimants are
still not entitled to try first their suit against the marine
29
underwriters in a state court proceeding under the Louisiana
Direct Action Statute.
Finally, I want to register my disagreement with the
inference, which the panel opinion attempts to create on page 12
of its opinion, that the issues to be litigated in the Federal
Limitation of Liability Proceeding relate only to "issues
affecting the shipowner's right to limitation, such as ownership,
privity knowledge, and valuation. See Guillot v. Cenac Towing,
366 F.2d 898, 906 (5th Cir. 1966)." First of all, the Guillot
opinion, as mentioned above, should have been cited by the panel
majority (but was not) for the proposition that the injunctive
relief issued by the District Court under Rule F(3) against any
direct action in the state court was proper equally as to the
marine insurers as to the owner of the vessel involved in the
limitation of liability proceeding. Rather the panel opinion
selects a phrase out of the second part of the Guillot opinion
dealing with the propriety of a simultaneous state court action
against the corporate officers of the Shipowner and converts that
selected phrase from a specific recognition, of two elements
(privity and knowledge) which are clearly exclusive to the
limitation of liability proceeding, to a general classification
of all exclusive elements which it is not. In my view, the
elements of "fault and liability" are absolutely essential
elements of the determination of the shipowner's right to limit
liability. Certainly in this case involving collisions in
Louisiana waters between three navigating vessels and the
30
potential of a direct action in state court against marine
underwriters, the words of Justice Clark in effecting the
compromise in Cushing are controlling and determinative:
"Our only interest is to make certain that such actions
[against insurance companies under the Louisiana Direct
Action Statute] do not interfere with the Federal
Limitation Proceeding. To do this we need only require
that the limitation proceeding be concluded first and
the owner's liability settled under." p.425 (emphasis
added)
I believe, therefore, that the panel opinion "muddies" what
I thought would have been the "settled waters" of our Circuit's
juris prudence that trial in the limitation of liability
proceeding would encompass all issues relevant to a determination
of whether the shipowner is entitled to be exonerated from or
limited as to its liability for the casualty involved. I think
the panel opinion is in error in suggesting that such a
determination can be made "only as to issues affecting the
shipowner's right to limitation, such as ownership, privity,
knowledge, and valuation" without including all issues regarding
liability.
31