New Case from Fifth Circuit – Crescent Towing & Salvage Co. v. Chios Beauty Mv.

Hurricane Katrina, vessel collisions and letters of undertaking. All the makings of a great case! This is a new admiralty case from the Fifth Circuit Court of Appeals. The case is Crescent Towing & Salvage Co. v. Chios Beauty Mv., 2010 U.S. App. LEXIS 13963 and the original decision can be found here. Facts are brief: The master of the CHIOS BEAUTY decided to moor in New Orleans, just ahead of the landing of Hurricane Katrina. The vessel's mooring lines parted in the storm and caused damage to a neighboring vessel. That vessel's owners brought suit against the CHIOS BEAUTY in remand against the pilot of the vessel the owners of the CHIOS BEAUTY obtained a Letter of Undertaking that allowed for the release of the arrested CHIOS BEAUTY. Issues: should a deferential, extremis standard of care govern the decision to moor in New Orleans just ahead of the hurricane (Translation: should the law expect masters to make the right decision during extreme events). Second, did the language of the Letter of Undertaking constitute a waiver of post-judgment interest? STANDARD OF CARE IN EXTREMIS The court set forth the principles behind the standard of care in extreme situations: "It has long been the law that errors in judgment committed by a vessel put in sudden peril through no fault of her own are to be leniently judged. . . .Courts are not supposed to second guess parties in peril and expect from them the most precise judgments." Union Oil Co. of Cal. v. Tug Mary Malloy, 414 F.2d 669, 674 (5th Cir. 1969). "[W]here, without prior negligence, a vessel is put in the very center of destructive natural forces and a hard choice between competing courses must immediately be made, the law requires that there be something more than mere mistake of judgment by the master in that decision in extremis." Employers Ins. of Wausau v. Suwannee River SPA Lines, Inc., 866 F.2d 752, 771 (5th Cir. 1989) (quoting Boudoin v. J. Ray McDermott & Co., 281 F.2d 81, 84 (5th Cir. 1960)). However, the in extremis standard of care should not be applied to the actions of a captain who had ample time to avoid the peril. See Boudoin, 281 F.2d at 84-86 (in extremis standard does not apply to captain who had time to choose a safer berth before hurricane struck). The court found that under the circumstances, the master of the CHIOS BEAUTY had other options and could have sailed to a safer port, in light of the weather information he had access to. LETTERS OF UNDERTAKING Letters of Undertaking are akin to a surety bond that will secure a claimant's lawsuit and allow a vessel that has been arrested to be released. In disputes over the interpretation of such letters, the court said: Considering how common letters of undertaking are in the vessel seizure context, there are surprisingly few cases interpreting them. The few that do apply standard contract principles and specifically enforce their provisions. See, e.g., Chiquita Int'l Ltd. v. Liverpool & London Steamship Prot. & Indem. Ass'n Ltd., 124 F. Supp. 2d 158 (S.D.N.Y. 2000). The Letter in this case said: This letter provided that the American Owners Mutual Protection and Indemnity Association, Inc. ("the Association") undertook to pay Plaintiffs any sum . . . which either may be agreed between the parties and approved by the Association, or which is adjudged to be due . . . in the matter pending in the . . . District Court . . . from the Vessel, in rem, and/or its Owner by final judgment . . . provided that the total of our liability hereunder shall not exceed the sum of US$3,750,000.00 . . . inclusive of interest and costs. At issue was whether the letter included post-judgment interest (and therefore would deny such recovery if it exceeded the letter amount), or whether it would provide payment in the amount specified PLUS post-judgment interest. The court found that it was the latter.

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