In this case of first impression, Live Life Bella Vita, LLC. V. Cruising Yachts, Inc., the court was asked to determine whether indemnity claims constitute separate claimants under the Limitation of Liability Act (otherwise known as the "Limitation Act"). The shipowners, Live Life Bella Vita, LLC, filed a limitation action in federal court seeking to cap their liability following a severe injury suffered by a maintenance diver, Eduardo Loaiza. The district court initially enjoined all related suits pursuant to the Limitation Act but later dissolved the injunction, allowing Loaiza to pursue his state court claims under the "single claimant" exception. However, when third-party indemnity and contribution claims were filed in the federal proceeding, the ship owners challenged the district court's decision, arguing that the presence of these third-party claims created a multiple claimant scenario under the Limitation Act.
In this interlocutory appeal, the court addressed the pivotal question of whether third-party claims, including those for indemnity, contribution, and attorney fees, should be considered as separate claims, thus impacting the shipowner's right to limit liability. Ultimately, the court held that third-party claims do qualify as separate claims under the Limitation Act and vacated the district court's dissolution of the injunction, remanding the case for further proceedings.
Background Facts
The ship owners owned the sailboat Allora, which was docked in Marina Del Rey, California. Around October 6, 2022, S and K Dive Service sent Eduardo Loaiza and David Jacobsen to inspect the bow thruster and measure the propeller. Loaiza was underwater conducting the inspection when Jacobsen "activated the propeller at which point its blades viciously cut through Loaiza's hands." Loaiza was severely injured as a result.
The owners of the vessels attempted to limit their liability in federal court using the Limitation Act. The ship owners stipulated that the value of the Allora was $788,000 and provided security to the court in that amount pursuant to the requirements of the Limitation Act. The district court entered an injunction as to all related suits. Loaiza requested that the district court stay its injunction and permit him to proceed with his claim in state court. He filed a complaint in Los Angeles Superior Court as well as filing counterclaims against the ship owners in the limitation proceeding in federal court. He also filed a third-party complaint in federal court against S and K Dive, Jacobsen, Davey Lux, Cruising Yachts and Sail California (referred to collectively herein as "third-party defendants"). The ship owners filed their own third-party complaint against the third-party defendants claiming that they were responsible for Loaiza's injuries. S and K Dive soon after filed a third-party counterclaim and crossclaim in federal court for indemnity, contribution, declaratory relief, and attorney’s fees.
Loaiza filed separate motions to dismiss the ship owner's initial complaint for lack of admiralty jurisdiction, and to stay the limitation proceeding, which would enable him to pursue his claims in state court. The district court denied Loaiza’s motion to dismiss but granted the motion to stay the limitation proceeding. In doing so, the district court effectively dissolved its earlier order enjoining suits in any other court and opened the door for Loaiza to proceed in state court. The district court found that Loaiza was a single claimant and reasoned that indemnity and contribution claims would not affect the overall amount of damages.
In this interlocutory appeal, the shipowners disputed the district court's decision to effectively dissolve the injunction. They argued that the "single claimant" exception should not apply because third-party indemnification and attorney's fees claims are still pending in the federal court action, creating multiple claims. In this case of first impression, the ship owners asked the court to determine whether indemnity claims qualify as separate claimants under the Limitation Act. Ultimately, on appeal, the court agreed that third party indemnity or contribution claimants count as separate claims under the Limitation Act. Therefore, the court vacated the district court's dissolution of the injunction and remanded for further proceedings.
Admiralty Jurisdiction
Federal courts have jurisdiction over "any 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); see also U.S. CONST. art. III §2, cl. 1 which states that "[t]he judicial power shall extend…to all cases of admiralty and maritime jurisdiction."
The Saving-to-Suitors Clause
The Saving-to-Suitors clause, found in 28 U.S.C. § 1333(1), preserves the right of litigants to pursue certain maritime claims in state court, allowing for remedies outside of federal admiralty jurisdiction. While federal courts have exclusive jurisdiction over admiralty cases, the clause ensures that plaintiffs can choose to seek remedies such as jury trials, which are typically unavailable in admiralty courts. Essentially, it provides flexibility by allowing maritime claimants to access state courts for certain cases, while still safeguarding the exclusive jurisdiction of federal courts over specific admiralty matters, such as claims under the Limitation Act.
The Limitation of Liability Act
The Limitation Act can be found in 46 U.S.C, §§ 3-501-30530. This act limits a shipowner's liability to the value of the vessel and its pending freight for any loss, damage, or injury resulting from a collision or other incident occurring without the owner's knowledge or involvement. 46 U.S.C. § 30523(a)–(b). Essentially, the Limitation Act shields shipowners from liabilities exceeding the value of their vessel and freight. To promote efficiency in the resolution of such claims, the act establishes a procedure in admiralty courts to consolidate all pending lawsuits into a single limitation proceeding. 1 Thomas J. Schoenbaum, Admiralty & Mar. Law § 15.1 (6th ed. 2019).
The purpose of this proceeding is to:
- Determine whether the vessel and its owner are liable.
- Assess if the owner's liability can indeed be limited.
- Establish the amount of valid claims. And,
- Allocate the available funds among the claimants. Id. § 15:6; Gorman v. Cesaria, 2 F.3d 519, 524 (3d. Cir. 1993).
The Limitation Act and Admiralty Rules also outline the procedural steps necessary in bringing these claims in the district court under admiralty jurisdiction, as outlined in 2 Schoenbaum, supra, at § 15:6. First, the shipowner must file the complaint within six months of receiving written notice of the claim. 46 U.S.C. § 30529(a); Fed. R. Civ. P. Supp. R. F(1). Second, the owner must deposit a limitation fund with the court in an amount equal to the value of the owner's interest in the vessel and pending freight, or transfer interest to a court-appointed trustee. 46 U.S.C. § 30529(b); see also Fed. R. Civ. P. Supp. R. F(1). Once these requirements are met, "all claims and proceedings against the owner related to the incident must cease." 46 U.S.C. § 30529(c). The district court will then enjoin any further legal action against the owner or the owner's property regarding any claims subject to the limitation action. Fed. R. Civ. P. Supp. R. F(3) This gives the district court exclusive jurisdiction over the limitation proceeding, even if a claimant has already filed suit in state court.
Tension Between the Saving to Suitors Clause and Limitation Act
There is inherent tension between the Saving to Suitors Clause and the Limitation Act. While one statute grants claimants the right to choose their remedy, the other allows vessel owners to limit their liability in federal court. Lewis v. Lewis & Clark Marine, Inc., 531 U.S. 438, 448 (2001). In essence, the admiralty jurisdiction statute protects a claimant's ability to choose their forum, including the option to proceed in state court with a jury trial. Conversely, the Limitation Act prioritizes the shipowner's interest, confining proceedings to federal court if the district court determines that the shipowner's right to limit liability cannot be adequately protected. Id. at 454. In an effort to resolve this inherent conflict, courts have carved out exceptions to the Limitation Act's exclusive federal jurisdiction.
Under these exceptions, claims may proceed in state court under two conditions:
- If the limitation fund exceeds the total claims, making pro rata distribution unnecessary, the district court must allow claimants to pursue their separate actions in state court and exercise their right to a trial by jury, Newton v. Shipman, 718 F.2d 959, 962 (9th Cir. 1983), or
- When only one claim has been filed, and there is no indication of additional claims, the district court must lift its injunction, allowing the sole claimant to proceed in state court to pursue a separate action and jury trial. Id.
In the single-claimant scenario, the limitation proceeding is generally unnecessary since no other claimants are competing for the limitation fund. S & E Shipping Corp. v. Chesapeake O. Ry. Co., 678 F.2d 636, 643 (6th Cir. 1982). However, this exception does not impair the shipowner's right to limited liability.
Put simply, no matter the size of a state court judgment against the shipowner, the shipowner's liability remains capped at the value of the limitation fund. Therefore, a claimant using the single claimant exception must agree to specific conditions before proceeding in state court. Newton, 718 F.2d at 962. State courts can adjudicate such claims, but only if the shipowner's right to limit liability is safeguarded. These conditions typically include acknowledging the district court's ongoing jurisdiction over issues related to the limitation of liability. However, these stipulations from a single claimant are insufficient to protect the shipowner when multiple claimants exist, and the limitation fund cannot cover all claims. As a result, the court must first determine whether the case involves multiple claimants before proceeding with limitation proceedings.
Is a Party seeking Indemnity or Contribution a Separate Claimant?
In the case at hand, the shipowners argued that the indemnity and contribution claims made by the third-party defendants constituted a multiple claimant situation. The court recognized that "[i]ndemnity and contribution claims against a shipowner potentially jeopardize this right because it may expose the shipowner to liability above the value of the vessel and pending freight." In re Complaint Holly Marine Towing, 270 F.3d 1086, 1089 (7th Cir. 2001). The Third Circuit in Gorman opined "if third-party defendants do not sign protective stipulations with the admiralty court, they would not be foreclosed from recovering against the shipowner for contribution, even though [the shipowner’s] liability . . . has already been exhausted.” Gorman, 2 F.3d at 527. “It is precisely this kind of competition for the limitation fund that the Act was designed to avoid.” Id.
Here, the shipowners asked the court to cap their liability at the value of the vessel, but Loaiza sought more than that amount. In addition, S and K Dive filed a third-party claim against the shipowner seeking indemnification, and other potential third-party defendants might do so as well. With all of these additional claims, the shipowner was potentially liable in excess of the limitation fund. The court followed precedent from other circuits on this issue and found that "a district court must consider actual and potential indemnity and contribution claims from named co-defendants before dissolving an injunction under the Limitation Act." Williams Sports Rentals v. Willis, 90 F.4th 1032,1039 (9th Cir. 2024) . Therefore, the court concluded that a party seeking indemnity or contribution is a separate claimant under the umbrella of the Limitation Act.
Do Attorney Fees Constitute Separate Claimants?
Claimants seeking attorney fees should also be considered separate claimants by the court. Williams Sports Rentals v. Willis, 90 F.4th 1032,1039 (9th Cir. 2024) . "Attorney's fees are separate from any claims for liability so they are not derivative of the injured party's claim." Id. In short, these claims also add to the bottom line owed by the shipowners and have the potential to tip the scale in excess of the limitation requirement. Since S and K Dive filed claims for indemnity, contribution, declaratory relief and attorney's fees, the court concluded that this was a sufficient basis to find that the limitation proceeding involved multiple claimants.
The Importance of Stipulations to Safeguard the Limitation Right
In order to comply with legal requirements, single claimants must agree to protect the shipowner's right to limit liability in district court before proceeding in state court. It is possible for a state court action to continue even in cases with multiple claimants, provided that appropriate stipulations are in place.
Here, the shipowners argued that Loaiza's stipulations were inadequate because "the stipulations must be signed by all claimants, including the third-party defendants asserting contribution or indemnity claims against the vessel owners." The court agreed. It determined that because the third-party claims could increase the shipowner's liability above the limitation fund, all parties, including joint tortfeasors who have not yet filed claims, must sign the required stipulations before any proceeding many be heard in state court. "In order to proceed in state court, all claimants mist sign the stipulation protecting the shipowner's rights under the Limitation Act," In re Complaint of Holly Marine Towing, Inc. 270 F.3d 1086 (7th Cir. 2001).
Moreover, the court stated that "requiring multiple claimants to enter stipulations before the district court does not necessarily preclude claimants from enjoying their choice of remedies and proceeding in state court, as guaranteed by the saving-suitors clause." Once the stipulations are in place, the claims may move to state court with all of the parties' respective rights in place. In the case at hand, S and K Dive had not provided the required stipulations. This put the shipowners in a situation of multiple claimants with no guarantee that the liability limitation would be honored. Therefore, the dissolution of the injunction was improper without first having the protective stipulations completed.
Conclusion
The presence of third-party claims for indemnity, contribution, or attorney's fees constitutes a multiple claimant scenario under the Limitation Act, which requires all claimants to enter stipulations before a district court can lift an injunction and allow state court proceedings to continue. In this case, with multiple actual and potential claims at issue, the plaintiff's unilateral stipulations were insufficient to protect the shipowner's right to limited liability. Consequently, on appeal the court vacated the district court's order that allowed the plaintiff to proceed with his state court action and reinstated the injunction against all related legal actions. The case was remanded with orders for the district court to resume the limitation proceeding to ensure that revised stipulations complied with the law.