Ninth Circuit Rules That Bankruptcy Filing Does Not Affect District Court’s In Rem Jurisdiction Over Vessel and Adopts Burden-Shifting Approach to Pretrial Awards of Maintenance Payments

by Lane Powell PC
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On March 28, 2018, the Ninth Circuit Court of Appeals addressed both the in rem jurisdiction of a federal district court sitting in admiralty vis-a-vis an intervening bankruptcy, and in a question of first impression in the Ninth Circuit, the proper approach to setting the amount of maintenance an injured seaman is entitled to receive prior to trial. In Barnes v. Sea Hawaii Rafting, LLC, ___ F.3d ___ (9th Cir. 2018), the Ninth Circuit considered the impact of a vessel owner’s bankruptcy on a seaman’s maritime lien, finding that the district court had “exclusive” control over the vessel and did not lose in rem jurisdiction as a result of the vessel owner’s bankruptcy filing.  Separately, the court clarified that pretrial maintenance can be awarded on summary judgment, and adopted the Second Circuit’s burden-shifting approach in considering the appropriate figure to award.

Barnes Files a Complaint for Maintenance and Cure

In 2012, plaintiff Barnes was a crew member of the M/V Tehani, a 25-foot rigid hull inflatable boat operated by defendant Sea Hawaii Rafting, LLC (“SHR”) to provide tours of the Hawaiian coast.  While Barnes was preparing the vessel for a snorkeling trip an explosion occurred, causing Barnes serious injuries to his back and head.  SHR lacked insurance to pay for Barnes’ medical treatment.

In 2013, Barnes filed a verified complaint in admiralty against SHR, SHR’s owner and manager (Henry), and the Tehani, claiming unseaworthiness, various theories of negligence, and intentional infliction of emotional distress.  The verified complaint sought the remedies of maintenance and cure, damages, and attorney’s fees.  Barnes did not take steps to have the Tehani arrested, however, because Henry’s and SHR’s ability to pay maintenance and cure depend on the continued operation of the vessel. 

The three defendants answered the verified complaint.  The answers generally denied that the Tehani was subject to the court’s in rem jurisdiction, but did not dispute that Barnes was injured in its service.  

Barnes then moved for summary judgment on the issue of maintenance and cure, requesting that the court order the defendants to pay reasonable food and lodging costs and medical expenses.  The district court granted Barnes’ motion in part, finding that there was no dispute that Barnes was entitled to maintenance and cure payments, but that Barnes had failed to establish that his food and lodging costs were reasonable in Honolulu, and that he had failed to establish his actual medical expenses.  The district court thus declined to award maintenance or cure (and subsequently denied several more motions on the same issue).

Barnes then filed an unverified amended complaint.  Defendants once again generally denied that the Tehani was subject to the district court’s in rem jurisdiction, but did not challenge jurisdiction through a Rule 12(b) motion or any other means.  Barnes proceeded to file another summary judgment motion.

In the face of the summary judgment motion, after 15 months of litigation and just over a month before trial, Henry and SHR filed for bankruptcy relief—Henry under Chapter 13 and SHR under Chapter 7.  The district court stayed proceedings against all three defendants, but later dismissed the Tehani, reasoning that the court lacked in rem jurisdiction over the vessel because the amended complaint was not verified and because the vessel was never arrested.

Barnes appealed the district court’s orders dismissing the Tehani and denying his request to set a maintenance amount.  While the appeal was pending, the bankruptcy court approved the sale of the Tehani to Henry and his new company free and clear of any liens after determining that Barnes had lost any maritime lien in the vessel through his failure to verify the amended complaint and invoke the district’s courts in rem jurisdiction.

Plaintiff’s Failure to Verify Amended Complaint Did Not Divest the District Court of In Rem Jurisdiction

The Ninth Circuit first determined that the district court obtained in rem jurisdiction over the Tehani after Barnes filed his verified complaint, despite the fact that the vessel was not arrested pursuant to Rule C of the Supplemental Rules for Certain Admiralty and Maritime Claims (“Supplemental Rules”).  The court noted that all three defendants answered the verified complaint, conducted discovery, opposed summary judgment motions, and participated in settlement conferences without challenging the district court’s in rem jurisdiction.  The court therefore found that the defendants had waived their jurisdictional defense by not raising it in a Rule 12 motion.

Next, the court found that the unverified amended complaint only superseded the original verified complaint as to its substance, leaving the procedural aspects—and the court’s in rem jurisdiction—intact.  Specifically, the court noted that Supplemental Rule C did not require amended pleadings to be verified, and doing so would not further the rule’s procedural protections of providing notice to the vessel’s owner.  Accordingly, the Ninth Circuit held that the district court erred in dismissing the Tehani for lack of in rem jurisdiction. 

The Bankruptcy Court Lacked Jurisdiction to Extinguish Barnes’ Maritime Lien

The Ninth Circuit then turned to the bankruptcy court’s exercise of jurisdiction and its approval of the bankruptcy trustee’s sale of the Tehani free and clear of Barnes’ maritime lien.  The court recognized that the automatic stay afforded by the SHR’s bankruptcy filing applied to “any act to create, perfect, or enforce any lien against property of the estate.”  11 U.S.C. § 362(a)(4).  However, the court found that the Bankruptcy Act’s silence as to maritime liens was an indication that Congress did not intend to include “sacred” maritime liens within the scope of Section 362, and that Barnes’ efforts to enforce his maritime lien for maintenance and cure was not impacted by the SHR’s bankruptcy. 

The Ninth Circuit also disposed of the bankruptcy trustee’s argument that any error was moot as a result of the bankruptcy court’s approval of the sale, finding that the bankruptcy court never obtained jurisdiction over the Tehani, and reiterating that the district court took constructive control of the vessel as of the filing of Barnes’ verified complaint.  The court then went a step further, finding that even if the bankruptcy court had jurisdiction, its attempt to dispose of Barnes’ maritime lien was ineffective because it had applied bankruptcy law and not admiralty law—which was the only means of extinguishing a maritime lien recognized by the courts. 

The Court Adopts the Fifth and Second Circuits’ Approach to Addressing Pretrial Motions for Maintenance Payments to Injured Seamen

Having established that the district court had in rem jurisdiction over the Tehani and that SHR’s bankruptcy did not extinguish Barnes’ maritime lien, the Ninth Circuit then turned to the district court’s refusal to award Barnes maintenance payments.

In construing Barnes’ appeal as a petition for a writ of mandamus, the court began by recognizing several well established principles of admiralty law—including that a shipowner’s duty to pay maintenance and cure is virtually automatic, that the remedy is available regardless of a seaman’s negligence, and that the procedure is intended to resolve a seaman’s dispute quickly and flexibly.  The Ninth Circuit proceeded to examine the tension between these principles of admiralty procedure and the mandate of Fed. R. Civ. P. 56, requiring the absence of a genuine dispute as to any material fact before granting summary judgment.  The court separated its analysis into two inquiries—a seaman’s right to maintenance, and the proper amount of maintenance to award.

As to the first inquiry, the court found that “liberal admiralty policies and correspondingly rudimentary elements of a maintenance claim mean that, in practice, a seaman will have little difficulty demonstrating his entitlement to maintenance under a summary judgment standard.”  Opinion at *15.

The court found the second inquiry more difficult due to the presumption that adverse parties often disagree about the appropriate maintenance rate, which would ordinarily present a question of fact preventing summary judgment.  Still, that question proved not to be insurmountable, and the court offered two approaches that would allow district courts to grant timely pretrial maintenance payments to injured seaman:  the first being the unremarkable proposition that a seaman who demonstrates a right to maintenance may receive any sum that is undisputed; and the second that a court may implement Fed. R. Civ. P. 42(b) to sever the issue and hold an expedited trial to set the proper maintenance rate. 

Having determined that a summary judgment standard applied to setting the amount of maintenance to award pretrial, the Ninth Circuit then addressed for the first time the application of that standard, relying heavily on jurisprudence from its sister circuits.

The court began by analyzing the Fifth Circuit’s opinion in Hall v. Noble Drilling (U.S.) Inc., 242 F.3d 582 (5th Cir. 2001), holding that a seaman “is entitled to the reasonable cost of food and lodging, provided he has incurred the expense.”  Id. at 587.  Hall counsels that a seaman’s actual expenses are presumptively reasonable, subject to an adjustment if the court determines that the actual costs were more or less than an objectively reasonable amount.  Id. at 590.  Once a seaman presents evidence of his actual costs, Hall instructs district courts to calculate a reasonable maintenance rate:

In determining the reasonable costs of food and lodging, the court may consider evidence in the form of the seaman’s actual costs, evidence of reasonable costs in the locality or region, union contracts stipulating a rate of maintenance or per diem payments for shoreside food or lodging while in the service of a vessel, and maintenance rates awarded in other cases for seamen in the same region.

Id. at 590.  However, under Hall, a seaman need not present evidence of the reasonable rate, and the court may take judicial notice of the prevailing rate in the district.  Id.

The Ninth Circuit noted the wide ranging acceptance of the Fifth Circuit’s approach in Hall, and then expressly adopted the Second Circuit’s burden-shifting test applied in Incandela v. Am. Dredging Co., 659 F.2d 11 (2d Cir. 1981).  That is, once a seaman makes out a prima facie case on the maintenance rate question when he proves the actual living expenditures which he incurred, “the burden shift[s] to the defendant to demonstrate that plaintiff’s actual expenditures were excessive, in light of any realistic alternatives for room and board available to him in [the locality]."  Id. at 14. 

Turning back to Barnes’ circumstances, the Ninth Circuit found that the district court committed clear error by requiring Barnes to provide evidence of the current costs of food and lodging in Honolulu before awarding him maintenance.  Ultimately, the district court’s order dismissing the Tehani for lack of jurisdiction was reversed, a writ of mandamus was issued directing the district court to award Barnes the undisputed maintenance he was entitled to, and the Ninth Circuit “urged” the district court to move quickly upon remand to sever the issue of maintenance and cure for an expedited trial to determine whether Barnes was entitled to an upward adjustment of his maintenance rate.

Takeaways

Under admittedly unique circumstances, the Ninth Circuit took care to ensure that the protections injured seamen are afforded under admiralty law would be advanced, and that courts in the circuit have a clear path to awarding timely maintenance and cure relief.  Having a procedure in place—and ample direction from the Second and Fifth Circuits—should prevent unnecessarily long delays or superfluous litigation in connection with the issues presented in Barnes.

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