U.S. Court of Appeals for the Fifth Circuit, CH Offshore v. Mexiship Ocean, Docket No. 24-20525

Admiralty

 

Maritime Law

 

Writ of Maritime Garnishment

 

Attachment to Certain Funds in a U.S. Bank Account

 

Charter Party Agreement

 

Alter Ego Theory of Liability

 

Federal Maritime Law v. State Law

 

 

 

Appeal from the United States District Court for the Southern District of Texas USDC No. 4:24-CV-219

 

 

The Charter Agreement, executed on May 21, 2021, provided that CH Offshore would charter the Vessel to Mexiship Ocean for an initial period of eighteen months. The agreement further stipulated that CH Offshore could terminate the agreement if Mexiship Ocean failed to promptly pay for the charter hire and if, upon notice, the failure to pay persisted. Once the charter period expired, Mexiship Ocean was to redeliver the Vessel in a timely manner. Failure to return the Vessel accordingly would result in an enhanced hire rate but would not extend the duration of the charter.

 

 

In September of 2022, CH Offshore initiated arbitration proceedings against Mexiship Ocean to recover damages for unpaid charter hire.

 

 

Later, in May of 2023, with the Vessel still in Mexiship Ocean’s possession, CH Offshore integrated its claim for the Vessel’s redelivery in the arbitration proceedings, seeking an injunction requiring Mexiship Ocean to return the Vessel.

 

 

The present action began with an accidental email. In January of 2024, CH Offshore was copied on an email between Mexiship Ocean’s CEO, Edgardo Armando Perez Robert (“Mr. Perez”), and a representative from Seahorse Marine & Energy Joint Stock Company (“Seahorse”) related to a charter between those two entities. The email included an attachment of a settlement agreement (the “Settlement Agreement”) between Mexiship Ocean and Seahorse, which provided that Seahorse would return a deposit from Mexiship Ocean in an amount of $808,238.72 (the “Settlement Refund”). CH Offshore brought the present action to secure its debt—and enforce the arbitration award—by attaching the property that the Settlement Agreement revealed: Mexiship Ocean was to receive the Settlement Refund and direct it to a U.S. bank account at Vantage Bank, with the beneficiary listed as Mexiship Ocean CCC LLC (“Mexiship Texas”), a U.S. company. The complication central to the current dispute is whether defendant Mexiship Ocean or non-party Mexiship Texas owns the funds that CH Offshore seeks to attach.

 

 

CH Offshore filed suit in the Southern District of Texas on January 19, 2024, seeking a writ of garnishment to attach funds held in the Vantage Bank account under Rule B of the Federal Rules of Civil Procedure Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions (“Rule B”) and damages for “conversion of the Vessel arising out of Mexiship Ocean’s unlawful refusal to return the Vessel.” CH Offshore brought this suit to “enforce its Partial Final Award issued in” the Singapore arbitration and to “obtain security for its still pending claims.”  On January 23, 2024, the district court granted CH Offshore’s request for a writ of garnishment against Vantage Bank up to the amount of $3,370,976.88.

 

 

After the limited discovery period expired, CH Offshore filed a proposed order on September 30, 2024, stating that the district court should grant it leave to amend its complaint to join Mexiship Texas and Mr. Perez as named defendants under an alter ego theory of attachment and to plead “Texas state attachment law as an alternative basis for maintaining the attachment of the funds held at Vantage Bank.” Mexiship Texas opposed this amendment, both in form and substance.

 

 

“Maritime attachment is a distinctive admiralty remedy that was a part of American jurisprudence at the time the Constitution was adopted.” Ultra Deep Picasso, 119 F.4th at 441 (quoting Boland Marine & Indus., LLC v. Bouchard Transp. Co., No. 1:20-CV-66-LY-ML, 2020 WL 10051743, at *2 (W.D. Tex. Feb. 28, 2020)). As such, we recognize the important role it plays in the context of maritime disputes, wherein parties cross both jurisdictional and oceanic lines. In the federal context, Rule B provides an avenue for attaching a defendant’s property in a maritime action for the purpose of “securing a respondent’s appearance and assuring satisfaction in case the suit is successful.” Malin, 817 F.3d at 244 (quoting Swift & Co. Packers v. Compania Colombiana Del Caribe, S.A., 339 U.S. 684, 693 (1950)). Texas state law also provides a parallel attachment law subject to separate requirements. See, e.g., Licea v. Curacao Drydock Co., 952 F.3d 207, 215 (5th Cir. 2015). CH Offshore’s challenges on appeal relate to both federal and state pathways for attachment. We take each claim in turn.

 

 

(…) We (…) consider whether CH Offshore has met its burden for a Rule B attachment. See Ultra Deep Picasso, 119 F.4th at 441. To meet this burden, we review whether CH Offshore has demonstrated each of four parts: 1) it has a valid prima facie admiralty claim against the defendant; 2) the defendant cannot be found within the district; 3) the defendant’s property may be found within the district; and 4) there is no statutory or maritime law bar to the attachment. Id. (quoting Aqua Stoli Shipping Ltd. v. Gardner Smith Pty Ltd., 460 F.3d 434, 445 (2nd Cir. 2006), abrogated on other grounds by Shipping Corp. of India Ltd. v. Jaldhi Overseas Pte Ltd., 585 F.3d 58 (2d Cir. 2009)). While our court has not “expressly endorsed Aqua Stoli’s four-part test,” it has employed the test, emphasizing the first three requirements. Ultra Deep Picasso, 119 F.4th at 441 (discussing the third requirement); K Invs., Inc. v. B.-Gas, Ltd., No. 21-40642, 2022 WL 964210, at *2 (5^th Cir. Mar. 30, 2022) (per curiam) (discussing the first two requirements). We adopt the same approach here, requiring CH Offshore to demonstrate that each of the four test elements is met.

 

 

(…) Our court has recognized that “for maritime attachments under Rule B, the question of ownership is critical.” Malin, 817 F.3d at 246 (cleaned up). Thus, the central question before the district court, and now on appeal, is whether Mexiship Ocean has a recognizable direct ownership claim over the Settlement Refund in the Vantage Bank account, despite Mexiship Texas being the account’s named beneficiary.

 

 

While neither the district court order nor party briefing examines the Settlement Agreement with supporting law, there are relevant precedents on the question of ownership of the funds at issue and on the distinction between ownership and beneficiary status. Texas law on ownership is of particular import, as our court has held that when there is a void regarding how federal maritime law would treat the type of interest at issue, we can “look to state law to determine property rights,” because “precedent in federal admiralty law is so thin that we should turn to state law more directly on point.” Malin, 817 F.3d at 246–47.

 

 

For one, our court has held that control, rather than named beneficiary status, is the primary factor in determining ownership. In the bankruptcy context, a panel of our court acknowledged that “control is the primary determinant of ownership of bank accounts . . . .” In re IFS Fin. Corp., 669 F.3d 255, 262, 264 (5th Cir. 2012); see also In re Southmark Corp., 49 F.3d 1111, 1116–17 (5th Cir. 1995) (noting that whether the debtor had “unfettered discretion to pay creditors of its own choosing, including its own creditors . . . is . . . particularly important” (footnotes omitted)). In In re IFS, our court drew on Texas garnishment law in particular, recognizing that “Texas law counsels that the legal titleholder to a bank account is not always the owner of its contents,” and that courts should “examine the individual facts of each case,” rather than the legal relationship between the parties. In re IFS, 669 F.3d at 262.

 

 

(…) There is at least sufficient evidence that requires further analysis and explication from the district court, especially as it pertains to the question of control vis-à-vis ownership. Because the evidence of control is complex but was not discussed in the district court’s order, we find that the district court abused its discretion by failing to engage with the relevant evidence and caselaw regarding the Rule B attachment. See McKinney ex rel. NLRB, 783 F. 3d at 298. The district court remains closest to the evidence produced, especially given the lengthy discovery disputes in this case, and is therefore well-positioned to draw out where control and, therefore, ownership of the Settlement Refund lies on remand.

 

 

The second issue on appeal is whether the district court erred in denying CH Offshore leave to amend its complaint. CH Offshore included its request for leave to amend in a proposed order—filed in place of a typical brief at the district court’s direction—in response to Mexiship Texas’s motion to vacate the writ of garnishment. CH Offshore sought leave to amend to include a state-law basis for attachment using an alter ego theory of liability.

 

 

(As discussed above, CH Offshore’s core claim for attachment rests on the terms of Mexiship Ocean’s Settlement Agreement and attaching to the Settlement Refund. But the parties also dispute the extent to which CH Offshore could reach additional funds in Mexiship Texas’s Vantage Bank account. To reach these additional funds, CH Offshore initially pled that Mexiship Ocean operates as an alter ego of Mexiship Texas, such that any of the latter’s funds could be reached to secure the debt of the former. Due to Rule B, which requires the defendant to not be present in the jurisdiction with the property, an alter ego claim would necessarily destroy federal jurisdiction—i.e., with a successful alter ego theory, if Mexiship Texas is found in the district, Mexiship Ocean would inherit the same jurisdictional properties. CH Offshore admits as much and does not present this argument on appeal as a basis for its existing Rule B attachment claim. Instead, as discussed further below, it intends to plead an alter ego theory purely in the alternative to its Rule B claim. Fn 4).

 

 

 

 

(U.S. Court of Appeals for the Fifth Circuit, Dec. 19, 2025, CH Offshore v. Mexiship Ocean, Docket No. 24-20525)

 

U.S. Court of Appeals for the Fifth Circuit, A&T Maritime Logistics v. RLI Insurance Co., Docket No. 23-30078

 

Insurance Law

 

Admiralty & Maritime Law

 

Breach of the Prompt Notice Requirement

 

Louisiana Law

 

 

 

RLI was actually prejudiced by the delayed notice from both A&T Maritime and Alexis Marine, as the damage worsened over time and the opportunity to settle for a lower amount was lost.

 

 

 

Appeal from the United States District Court for the Eastern District of Louisiana - USDC No. 2:21-CV-476.

 

 

 

A&T Maritime Logistics, Inc. had an insurance contract with RLI Insurance Company and a bareboat charter agreement with Alexis Marine, L.L.C. While A&T Maritime was operating the M/V Uncle John (a vessel owned by Alexis Marine), the ship allided with an embankment. Thinking the damage to be minimal, A&T Maritime did not remedy the situation. After a lawsuit was filed, RLI was notified of the claim. A&T Maritime and Alexis Marine filed claims against RLI requesting defense and ongoing indemnification for defense costs. RLI denied coverage under the insurance contract. On summary judgment, the district court upheld the denial. Because RLI was actually prejudiced by the delayed notice of a possible claim, we affirm.

 

 

(“An allision is defined as the ‘running of one ship upon another that is stationary—distinguished from collision.’ A collision is defined as ‘the action or an instance of colliding, violent encounter, or forceful striking together typically by accident and so as to harm or impede.’ Therefore, an allision occurs when a ship strikes a stationary object while a collision involves two moving vessels or objects.” Trico Marine Assets Inc. v. Diamond B Marine Servs. Inc., 332 F.3d 779, 786 n.1 (5th Cir. 2003). Fn. 1).

 

 

On March 10, 2020, while A&T Maritime was operating the Uncle John in the course of its work for Russell Marine, the Uncle John struck an embankment. The embankment fronts Bayou Black and the Gulf Intracoastal Waterway in Houma, Louisiana. At the time of the allision, the embankment was a portion of property belonging to Mildred Dampeer. A&T Maritime took some pictures of the resulting damage, but A&T Maritime “did not consider the allision to be significant.” A&T Maritime’s owner, Tayhika Manuel, engaged in discussions with Dampeer about resolving the issue. As part of these talks, A&T Maritime offered to send a repairman and offered payment of $3,500. According to Manuel’s deposition, the $3,500 was an agreed-upon amount. Dampeer later testified that she did not and would not have agreed to accept $3,500. Regardless, no payment was actually made, and the matter was “forgotten about more or less over a period of time.” On August 30, 2020 (over five months after the allision), Dampeer sent a letter to Manuel and attached an inspection of the embankment. In the letter, Dampeer expressed her concern that the damage resulting from the allision was worsening. Further, she stated, “I know you said you didn’t want to involve your insurance company. So please respond so we can keep the damage from getting worse.” Still, no settlement was reached, and A&T Maritime states that “the matter dropped for [sic] A&T’s radar until A&T was served with a lawsuit.”

 

 

Robert Champagne III and Elizabeth Champagne bought the property at issue from Dampeer. Based on an assignment in the purchase agreement, the Champagnes filed a lawsuit against A&T Maritime and Alexis Marine in personam and against the Uncle John in rem on March 8, 2021. The Champagnes also successfully moved for the arrest of the Uncle John. Alexis Marine filed a crossclaim against A&T Maritime and a third-party demand against RLI. A&T Maritime similarly filed a crossclaim against RLI requesting defense, indemnity, and ongoing reimbursement for defense costs. RLI was not notified about the allision until the lawsuit had been filed by the Champagnes. Once notified of the lawsuit, RLI filed counterclaims against A&T Maritime, Alexis Marine, and the Uncle John, seeking a declaration that, under the insurance policy, RLI had no duties to those parties for the incident at issue in the case.

 

 

The Champagnes’ claims were settled on November 18, 2021, for a settlement amount of $200,000. Alexis Marine was the sole party in this lawsuit to fund the settlement agreement with the Champagnes. 

 

 

This is likely because Alexis Marine had the strongest incentive to settle the case. As the owner of the Uncle John, Alexis Marine was losing potential revenue while the vessel was under arrest (Fn. 4).

 

 

(…) RLI argued, among other things, that the Uncle John was not a covered vessel under the insurance policy because only the Uncle Blue was listed on the policy. The district court disagreed and concluded that A&T Maritime and Alexis Marine correctly relied on the policy’s automatic attachment clause for coverage of the Uncle John.

 

 

Federal law generally “governs the interpretation of a policy of marine insurance.” Elevating Boats, Inc. v. Gulf Coast Marine, Inc., 766 F.2d 195, 198 (5th Cir. 1985). If there is no federal statute or general maritime law on an issue, “the law of the state where the marine insurance contract was issued and delivered is the governing law.” Id. The parties agree that Louisiana law, which requires an insurer to demonstrate actual prejudice resulting from delayed notice before it can deny coverage on that ground, provides supplemental rules of decision here. See id. (applying the Louisiana rule).

“Where the requirement of timely notice is not an express condition precedent,” to deny coverage based on late notice, “the insurer must demonstrate that it was sufficiently prejudiced by the insured’s late notice.” Peavey Co. v. M/V ANPA 971 F.2d 1168, 1173 (5th Cir. 1992); see also Elevating Boats, 766 F.2d at 198 (stating that under Louisiana law, “an insurer must demonstrate that an insured's failure to comply with a notice of claim or proof of loss provision actually prejudiced its interest" before it can deny coverage under the policy).

(…) Elevating Boats, 766 F.2d 195. In that case, the insurer was not notified of the potential claim until two weeks before trial. Id. at 198. We held that this delay was prejudicial for three independent reasons. Id. at 199–200. First, the insurer lost the opportunity to negotiate a settlement.  Id. at 199. Second, the insurer was deprived of the chance to make a third-party demand. Id. at 199–200. Third, the insurer was denied “the basic opportunity to investigate adequately the facts and circumstances surrounding the accident.” Id. at 200.

 

The reasoning of Elevating Boats does not turn on the stage of litigation at which notice is given to the insurer. Instead, we simply evaluated whether the delay in notice prejudiced the insurer. Thus, A&T Maritime cannot merely point to earlier notice than that in Elevating Boats to make a successful argument.

(U.S. Court of Appeals for the Fifth Circuit, Feb. 4, 2025, A&T Maritime Logistics v. RLI Insurance Co., Docket No. 23-30078)

U.S. Court of Appeals for the Fifth Circuit, A&T Maritime Logistics v. RLI Insurance Co., Docket No. 23-30078

Admiralty & Maritime Law

 

Interpretation of a Policy of Marine Insurance

 

Federal Law

 

 

 

 

Federal law generally “governs the interpretation of a policy of marine insurance.” Elevating Boats, Inc. v. Gulf Coast Marine, Inc., 766 F.2d 195, 198 (5th Cir. 1985). If there is no federal statute or general maritime law on an issue, “the law of the state where the marine insurance contract was issued and delivered is the governing law.” Id. The parties agree that Louisiana law, which requires an insurer to demonstrate actual prejudice resulting from delayed notice before it can deny coverage on that ground, provides supplemental rules of decision here. See id. (applying the Louisiana rule).

 

 

As an aside, “traditionally, the term ‘admiralty’ refers to the courts, jurisdiction, and procedure of maritime law, and ‘maritime’ refers to the substantive law itself.” Poincon v. Offshore Marine Contractors, Inc., 9 F.4th 289, 294 n.2 (5th Cir. 2021) (citing David W. Robertson, Steven F. Friedell & Michael F. Sturley, Admiralty and Maritime Law in the United States 4 (3d ed. 2015)). “That distinction has faded over time, and ‘admiralty’ and ‘maritime’ are now used largely synonymously.” Id. (Fn. 6).

 

 

 

 

(U.S. Court of Appeals for the Fifth Circuit, Feb. 4, 2025, A&T Maritime Logistics v. RLI Insurance Co., Docket No. 23-30078)

 

U.S. Supreme Court, Great Lakes Insurance SE v. Raiders Retreat Realty CO., LLC, Docket No. 22-500

Maritime Insurance Contract

 

Maritime Law

 

Choice-of-Law Provisions in Maritime Contracts

 

Federal Common Law Court

 

Circuit Split

 

 

 

“Federalism in admiralty and the scope of application of state law in maritime cases is one of the most perplexing issues in the law”.

 

 

 

 

 

This Court granted certiorari to resolve a split in the Courts of Appeals regarding the enforceability of choice-of law provisions in maritime contracts.

 

 

Maritime contracts often contain choice-of-law provisions that designate the law of a particular jurisdiction to control future disputes. The enforceability of those choice-of-law provisions is governed by federal maritime law. Applying federal maritime law in this case, we conclude that choice-of-law provisions in maritime contracts are presumptively enforceable, with certain narrow exceptions not applicable here.

 

 

Under the Constitution, federal courts possess authority to create and apply maritime law. Article III of the Constitution extends the federal judicial power to “all Cases of admiralty and maritime Jurisdiction.” U. S. Const., Art. III, § 2, cl. 1. That grant of jurisdiction contemplates a system of maritime law “‘coextensive with, and operating uniformly in, the whole country.’” Norfolk Southern R. Co. v. James N. Kirby, Pty Ltd., 543 U. S. 14, 28 (2004) (quoting American Dredging Co. v. Miller, 510 U. S. 443, 451 (1994)). The purposes of that uniform system include promoting “the great interests of navigation and commerce” and maintaining the United States’ “diplomatic relations.” 3 J. Story, Commentaries on the Constitution of the United States §1666, p. 533 (1st ed. 1833); see also Norfolk Southern, 543 U. S., at 28; Exxon Corp. v. Central Gulf Lines, Inc., 500 U. S. 603, 608 (1991). To maintain that uniform system, federal courts “make decisional law” for maritime cases. Norfolk Southern, 543 U. S., at 23. When a federal court decides a maritime case, it acts as a “federal common law court, much as state courts do in state common-law cases.” Air & Liquid Systems Corp. v. DeVries, 586 U. S. 446, 452 (2019) (internal quotation marks omitted); see Dutra Group v. Batterton, 588 U. S. 358, 360 (2019). “Subject to direction from Congress,” the federal courts fashion maritime rules based on, among other sources, “judicial opinions, legislation, treatises, and scholarly writings.” Air & Liquid Systems, 586 U. S., at 452; see also Exxon Co., U. S. A. v. Sofec, Inc., 517 U. S. 830, 839 (1996); East River S. S. Corp. v. Transamerica Delaval Inc., 476 U. S. 858, 864 (1986). Exercising that authority, federal courts follow previously “established” maritime rules. Wilburn Boat Co. v. Fireman’s Fund Ins. Co., 348 U. S. 310, 314 (1955).

 

 

No bright line exists for determining when a federal maritime rule is “established,” but a body of judicial decisions can suffice. See Bisso v. Inland Waterways Corp., 349 U. S. 85, 89–90 (1955). In the absence of an established rule, federal courts may create uniform maritime rules. See, e.g., Norfolk Southern, 543 U. S., at 23. When no established rule exists, and when the federal courts decline to create a new rule, federal courts apply state law. See Wilburn Boat, 348 U. S., at 320–321. For purposes of this general overview, we will stop there, as the “issue of federalism in admiralty and the scope of application of state law in maritime cases is one of the most perplexing issues in the law.” 1 T. Schoenbaum, Admiralty and Maritime Law §4:4, p. 268 (6th ed. 2018).

 

 

The initial question here is whether there is an established federal maritime rule regarding the enforceability of choice-of-law provisions. The answer is yes. Longstanding precedent establishes a federal maritime rule: Choice-of-law provisions in maritime contracts are presumptively enforceable. As a leading treatise says, it is “well established in admiralty that choice of law clauses” will “normally be enforced.” 1 Schoenbaum, Admiralty and Maritime Law §5:19, at 427; see also id., §4:4, at 275; 2 id., §19:6, at 431–432 (similar).

 

 

The Court has pronounced that forum-selection clauses in maritime contracts are “prima facie valid” under federal maritime law and “should be enforced unless” doing so would be “‘unreasonable’ under the circumstances.” The Bremen v. Zapata Off-Shore Co., 407 U. S. 1, 10 (1972); see also Carnival Cruise Lines, Inc. v. Shute, 499 U. S. 585, 593–594 (1991).

 

 

(…) Moreover, by supplying some advance assurance about the governing law, choice-of-law provisions help maritime shippers decide on the front end “what precautions to take” on their boats, American Dredging, 510 U. S., at 454, and enable marine insurers to better assess risk, see Brief for American Institute of Marine Underwriters et al. as Amici Curiae 12–13. Choice-of-law provisions therefore can lower the price and expand the availability of marine insurance. In those ways, choice-of-law provisions advance a fundamental purpose of federal maritime law: the “‘protection of maritime commerce.’” Exxon Corp., 500 U. S., at 608 (quoting Sisson v. Ruby, 497 U. S. 358, 367 (1990)).

 

 

Rather, the Wilburn Boat Court simply determined what substantive rule applied when a party breached a warranty in a marine insurance contract. See id., at 311–316. The Court concluded that no “established federal admiralty rule” governed the warranty issue. Id., at 314; see also id., at 314–316. And the Court declined to create a federal maritime rule on that question, both because States historically regulated insurance and because federal courts were poorly positioned to “unify insurance law on a nationwide basis.” Id., at 319; see also id., at 316–320. The Court therefore ordered that the warranty issue be tried “under appropriate state law.” Id., at 321.

 

 

(…) Moreover, Wilburn Boat held only that state law applied as a gap-filler in the absence of a uniform federal maritime rule on a warranty issue. 348 U. S., at 314–316. Here, however, no gap exists because a uniform federal rule governs the enforceability of choice-of-law clauses in maritime contracts.

 

 

After Wilburn Boat, maritime actors realized that a lot would depend on which State’s law governed each individual maritime dispute—a question that would be unclear in advance. See 2 Schoenbaum, Admiralty and Maritime Law §19:9. Choice-of-law provisions soon emerged as a ready answer to that problem. See W. von Bittner, The Validity and Effect of Choice of Law Clauses in Marine Insurance Contracts, 53 Ins. Counsel J. 573, 573, 578–579 (1986).

 

 

(…) The bottom line: As a matter of federal maritime law, choice-of-law provisions in maritime contracts are presumptively enforceable.

 

Of course, to say that choice-of-law clauses are presumptively enforceable as a matter of federal maritime law means that there are exceptions when the clauses are not enforceable. The parties agree that the exceptions are narrow—indeed, Raiders “freely concedes that in most every instance, a choice-of-law provision contained in a maritime insurance contract will be effective.” Tr. of Oral Arg. 54. In particular, the parties agree that courts should disregard choice-of-law clauses in otherwise valid maritime contracts when the chosen law would contravene a controlling federal statute, see Knott v. Botany Mills, 179 U. S. 69, 77 (1900), or conflict with an established federal maritime policy, see The Kensington, 183 U. S. 263, 269–271 (1902). For example, The Kensington declined to enforce a choice-of-law clause because the chosen law would have released a carrier from liability for negligence—a result that federal maritime law forbids. See ibid. The parties further agree that, as a matter of federal maritime law, courts may disregard choice-of-law clauses when parties can furnish no reasonable basis for the chosen jurisdiction. Cf. Carnival Cruise, 499 U. S., at 594–595; The Bremen, 407 U. S., at 10, 16–17. For example, it would be unreasonable to pick the law of a distant foreign country without some rational basis for doing so. That said, the “no reasonable basis” exception must be applied with substantial deference to the contracting parties, recognizing that maritime actors may sometimes choose the law of a specific jurisdiction because, for example, that jurisdiction’s law is “well developed, well known, and well regarded.” Brief for American Institute of Marine Underwriters et al. as Amici Curiae 17.

 

 

Unable to successfully invoke those exceptions, Raiders says that federal maritime law should recognize an additional exception when enforcing the law of the State designated by the contract would contravene the fundamental public policy of the State with the greatest interest in the dispute. We disagree with that argument. Indeed, Raiders’ request for that novel maritime exception is essentially a repackaged version of its initial argument that the enforceability of choice-of-law provisions in maritime contracts should be determined by state law. The argument fares no better here, for essentially the same reasons.

 

 

(…) We disagree with Raiders’ related suggestion that we adopt the choice-of-law approach set forth in §187(2)(b) of the Second Restatement of Conflict of Laws. In relevant part, that subsection says that choice-of-law provisions are enforceable unless they conflict with “a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue.” Restatement (Second) of Conflict of Laws §187(2)(b). As the commentary to the Restatement carefully explains, however, that rule arose out of interstate cases and does not deal directly with federal-state conflicts, including those that arise in federal enclaves like maritime law. See id. §2, Comment c; §3, Comment d; §10, Comment a.

 

 

 

 

Secondary sources: T. Schoenbaum, Admiralty and Maritime Law §4:4, p. 268 (6th ed. 2018); J. Coyle, The Canons of Construction for Choice-of-Law Clauses, 92 Wash. L. Rev. 631, 633, n. 6 (2017); M. Sturley, Restating the Law of Marine Insurance: A Workable Solution to the Wilburn Boat Problem, 29 J. Mar. L. & Com. 41, 45 (1998); G. Gilmore & C. Black, Law of Admiralty §§1–17, 2–8 (2d ed. 1975); W. von Bittner, The Validity and Effect of Choice of Law Clauses in Marine Insurance Contracts, 53 Ins. Counsel J. 573, 573, 578–579 (1986); Restatement (Second) of Conflict of Laws §187, Comment f, p. 567 (1969).

 

 

 

 

(U.S. Supreme Court, Great Lakes Insurance SE v. Raiders Retreat Realty CO., LLC, Feb. 21, 2024, Docket No. 22-500, J. Kavanaugh, Unanimous)

 

U.S. Court of Appeals for the Eleventh Circuit, Travelers Property Casualty Company of America v. Ocean Reef Charters LLC, Docket No. 21-14509

Insurance Law

 

Marine Insurance Warranty

 

Declaratory Action

 

Anti-Technical Statute (to Prevent the Insurer from Avoiding Coverage on a Technical Omission Playing No Part in the Loss)

 

Admiralty Law

 

New York State Law

 

Florida Law

 

 

 

 

Appeal from the United States District Court for the Southern District of Florida D.C. Docket No. 9:18-cv-81270-RAR

 

 

Insurance coverage dispute between Travelers Property Casualty Company of America (“Travelers”) and Ocean Reef Charters LLC, (“Ocean Reef”), a Florida Limited Liability Company. Ocean Reef owned a 92-foot yacht, the M/Y My Lady, which was destroyed during Hurricane Irma in September 2017. Ocean Reef had a $2 million insurance policy with Travelers covering property damage to the yacht. One of the My Lady’s representatives for Ocean Reef with respect to the boat, Richard Gollel, moored the yacht to a dock behind his Pompano Beach, Florida residence as the hurricane approached. But the yacht was destroyed by what registered as a Category 4 storm.

 

 

Travelers tried to avoid paying for the loss by preemptively seeking a declaratory judgment that the policy did not cover the loss because Ocean Reef did not have a full-time, licensed captain and crew for the yacht during the hurricane, as required under warranties in the insurance policy. It brought the declaratory action in the Western District of New York, alleging that Ocean Reef had an office and its principal place of business in Rochester, New York. Under New York state law, an insured forfeits coverage by violating a marine insurance warranty, regardless of whether the violation had any effect on the accident. The same is true under federal admiralty law as applied to at least some marine insurance warranties. Travelers Prop. Cas. Co. of Am. v. Ocean Reef Charters LLC, 996 F.3d 1161, 1167–68 (11th Cir. 2021).

 

 

2 See Com. Union Ins. Co. v. Flagship Marine Servs., Inc., 190 F.3d 26, 31–32 (2d Cir. 1999) (discussing how, “under . . . the law of most states,” including New York, “warranties in maritime insurance contracts must be strictly complied with, even if they are collateral to the primary risk that is the subject of the contract, if the insured is to recover” (citing N.Y. Ins. L. § 3106(c))). “However, unlike New York and the majority of states, Florida does not require strict compliance with all warranties, but it does preclude recovery where the ‘breach or violation increased the hazard by any means within the control of the insured.’” Id. at 32 (quoting Fla. Stat. § 627.409(2)). (Fn. 2).

 

 

3 Florida Statute § 627.409(2) is a “so-called ‘anti-technical statute.’” Travelers, 996 F.3d at 1164. The statute “was ‘designed to prevent the insurer from avoiding coverage on a technical omission playing no part in the loss.’” Id. at 1170 (quoting parenthetically Pickett v. Woods, 404 So. 2d 1152, 1153 (Fla. 5th Dist. Ct. App. 1981)). (Fn. 3).

 

 

On remand, because Travelers offered no expert witness—such as a licensed captain competent to speak to the issue—to prove that the lack of a full-time captain and crew played a role in the destruction of the yacht during Irma, the District Court granted summary judgment to Ocean Reef. We affirm.

 

 

Ocean Reef’s insurance policy had contained two express warranties since Ocean Reef first insured the My Lady with Travelers in 2014. One was called the “Captain Warranty.” The Captain Warranty provides: It is warranted you employ a professional captain for the yacht shown on the Declarations Page of this policy. Such captain shall be employed full time and approved by us. We will pay up to $1,500 for the cost of hiring a replacement captain, approved by us, if your captain is unable to perform his regular duties due to a medically certified cause. The other warranty was called the “Crew Warranty.” The Crew Warranty provides: You employ 1 full time or part time professional crew for your yacht shown on the Declarations Page of this policy. We also provide coverage for any additional, temporary crew you employ.

 

 

(…) As indicated supra, Travelers likely engaged in a strategy to avoid the application of Florida’s anti-technical statute, Fla. Stat. § 627.409(2). Under that statute, it would need to prove that the lack of a full-time captain and crew played a material role in the My Lady’s sinking to avoid paying Ocean Reef. On the other hand, under the federal rule that applies to some marine insurance warranties, Travelers, 996 F.3d at 1167–68, “and the law of most states,” including New York, “warranties in maritime insurance contracts must be strictly complied with, even if they are collateral to the primary risk that is the subject of the contract, if the insured is to recover.” Com. Union Ins. Co. v. Flagship Marine Servs., Inc., 190 F.3d 26, 31–32 (2d Cir. 1999) (citing N.Y. Ins. L. § 3106(c)).

 

 

(…) On February 25, 2019, Ocean Reef disclosed Captain Thomas Danti and Allister Dredge, a marine surveyor, as expert witnesses. They attached both experts’ reports to the disclosure. The disclosure included both experts’ qualifications, their opinions, and the bases for their opinions. See Fed. R. Civ. P. 26(a)(2). Captain Danti opined, after interviewing Gollel and inspecting the site, that the “storm preparations by Mr. Gollel met the standard of care of a professional Mariner.” He also opined that “the main cause of the vessel’s damage was unforeseeable failure of a mooring pile.” So, “the lack of a full time captain would not have prevented the yacht from becoming a total loss.” Danti’s bottom-line conclusion was: “There was no increased hazard in risk to the vessel by not having a full time captain at the time of the incident.” Dredge, the surveyor, also opined that the damage to the yacht was a “constructive total loss,” as repairs would cost $2.5 million.

 

 

(…) For the reasons discussed in Travelers Property Casualty Co. of America v. Ocean Reef Charters LLC, 996 F.3d 1161 (11th Cir. 2021), Florida law applies.

 

 

The Florida anti-technical statute we must apply provides: A breach or violation by the insured of a warranty, condition, or provision of a wet marine or transportation insurance policy, contract of insurance, endorsement, or application does not void the policy or contract, or constitute a defense to a loss thereon, unless such breach or violation increased the hazard by any means within the control of the insured. Fla. Stat. § 627.409(2). “The statute is designed to prevent the insurer from avoiding coverage on a technical omission playing no part in the loss.” Pickett, 404 So. 2d at 1153. Whether an insured increased the hazard by noncompliance with a warranty “is typically a question of fact for the jury.” Serendipity at Sea, LLC v. Underwriters at Lloyd’s of London Subscribing to Pol’y No. 187581, 56 F.4th 1280, 1290 (11th Cir. 2023) (citing Pearl Assurance Co. v. S. Wood Prods. Co., 216 F.2d 135, 136 (5th Cir. 1954)).

 

 

The effect of Ocean Reef’s failure to retain a full-time captain and crew leading up to and during Hurricane Irma is exactly the kind of issue that requires expert testimony. The question is hypothetical. Discussing what would have happened if a captain were in charge of the My Lady during Hurricane Irma necessarily requires hypothesizing. “And the ability to answer hypothetical questions is ‘[t]he essential difference’ between expert and lay witnesses.” United States v. Henderson, 409 F.3d 1293, 1300 (11th Cir. 2005).

 

 

 

 

 

Secondary Sources: Weinstein’s Federal Evidence § 701.03[1] (2023); Stephen A. Saltzburg et al., 3 Federal Rules of Evidence Manual § 701.02[7] (Matthew Bender 12th ed.)

 

 

 

 

(U.S. Court of Appeals for the Eleventh Circuit, June 23, 2023, Travelers Property Casualty Company of America v. Ocean Reef Charters LLC, Docket No. 21-14509, Publish)

U.S. Court of Appeals for the Fifth Circuit, Corporativo Grupo R SA DE C.V. v. Marfield Limited Inc., Docket No. 22-20345

Admiralty

 

Maritime Law

 

Liens

 

Loans (Admiralty)

 

Preferred Naval Mortgage

 

Bareboat Charters

 

Standstill Agreements

 

London Maritime Arbitration Association Dispute Resolution Clause

 

 

State-Created Liens

 

Attachment of the Vessels under Texas State Law

 

 

 

 

 

Appeal from the United States District Court for the Southern District of Texas, USDC No. 4:19-CV-1963

 

 

In 2008, Intervenors-Appellees Caterpillar Financial Services Asia Pte Ltd (“Caterpillar”) and Eksportfinans ASA (“Eksportfinans”) provided a loan to Marfield Limited Incorporated (“Marfield”) for the construction of an offshore construction vessel named the M/V CABALLO MAYA (“MAYA”). To secure payment of this loan, Marfield executed and delivered a First Preferred Naval Mortgage to Eksportfinans and a Second Preferred Naval Mortgage to Caterpillar on December 19, 2008. As further security for outstanding sums owed to Caterpillar, Marfield executed a Third Preferred Naval Mortgage on April 17, 2014, encumbering the whole of the MAYA. The MAYA was flagged in Panama, so all three of those mortgages were submitted to the Panama Maritime Authority Directorate General of Public Registry of Property of Vessels (“PMA”), which is the central office for the recordation of Panamanian ship mortgages. The PMA reviewed all three mortgages twice and accepted them for recordation.

 

 

In 2012, Caterpillar and Intervenor-Appellee the Norwegian Government (“Norway”) provided a loan to Shanara Maritime International S.A. (“Shanara”) for construction of another offshore construction vessel named the M/V CABALLO MARANGO (“MARANGO”). To secure this loan, Shanara executed and delivered a First Preferred Naval Mortgage to Caterpillar and Norway on February 9, 2012. The following year, KFW IPEX-Bank GmbH (“KFW”) provided a loan to Shanara to finance the acquisition of cranes for installation aboard the MARANGO. To secure payment of this loan, Shanara executed and delivered a Second Preferred Naval Mortgage to KFW on January 24, 2013. The MAYA was also flagged in Panama, so both mortgages were submitted to the PMA, which reviewed the mortgages twice and accepted them for recordation.

 

 

Once construction of the MAYA and MARANGO was completed, Marfield and Shanara chartered the vessels to Oceanografia S.A. de C.V. (“Oceanografia”) for use in Mexico. The MAYA and the MARANGO were chartered there until early 2014, when the Mexican government seized the vessels in conjunction with its criminal investigation of Oceanografia. On February 28, 2014, Marfield and Shanara terminated their bareboat charters of the vessels with Oceanografia, and the vessels remained in the Mexican government’s custody. Shanara and Marfield could not generate revenue on the vessels and began to fall behind on their loan payments to Intervenors-Appellees Caterpillar, Norway, KFW, and Eksportfinans (collectively, the “Lenders”). Shortly after that, bankruptcy proceedings were commenced against Oceanografia in Mexico, and, on April 10, 2014, the Mexican government separately seized the MAYA and MARANGO in connection with the bankruptcy.

 

 

In early 2014, Grupo R, a Mexican conglomerate in the oil, gas, and energy sector, initiated discussions with Marfield and Shanara to purchase the MAYA and MARANGO. On March 21, 2014, the parties entered into purchase agreements for the vessels. Shanara and Marfield were subsequently unable to obtain the release of the vessels from the Mexican government, which violated the deadlines set forth in the purchase agreements. Since the agreements are governed by English Law and contain a London Maritime Arbitration Association dispute resolution clause, Grupo R initiated a London arbitration against Shanara and Marfield. Grupo R prevailed, and on May 30, 2019, a London Arbitration Panel entered awards of $5,000,000 against Marfield and $5,000,000 against Shanara.

 

 

From the initial arrest of the vessels until December 2017, the Lenders executed a number of amendments to the original loan agreements to reaffirm Marfield’s and Shanara’s payment obligations, which remained unfulfilled. On July 10, 2015, the Lenders, Marfield, and Shanara executed two Standstill Agreements in which Shanara and Marfield admitted that their cancellation of the Oceanografia charters constituted “materially adverse” events of default under their respective loan agreements. To avoid the imposition of liens over the MAYA and MARANGO, Caterpillar provided additional financing to Marfield and Shanara in the form of four “protective advances,” or loans. In return, Marfield and Shanara executed four Preferred Naval Mortgages in favor of Caterpillar to secure the outstanding amounts due, then registered those mortgages with the PMA. The PMA reviewed each of the mortgages twice, then accepted them for recordation. Since 2014, Shanara and Marfield have made no loan payments to the Lenders on any of the nine mortgages issued.

 

 

On May 30, 2019, Grupo R filed suit in the U.S. District Court for the Southern District of Texas seeking to attach the MAYA and MARANGO under the Texas Civil Practice and Remedies Code Section 61.001, et seq. Grupo R requested that the court attach the vessels so they could be sold at judicial auction to satisfy Grupo R’s arbitration awards. Grupo R attached a Certificate of Ownership and Encumbrance to its Complaint, identifying the First, Second, and Third Preferred mortgages over the MAYA and the MARANGO. At the time, the MAYA and MARANGO had been released from Mexican seizure and were located in Galveston, Texas.

 

 

On June 7, 2022, the court issued its findings of fact and conclusions of law, holding, in relevant part, that (1) Marfield and Shanara are in default under the loan agreements; and (2) the Lenders’ preferred ship mortgages related to said default outrank Grupo R’s state-created liens arising from Grupo R’s attachment of the MAYA and MARANGO under Texas state law. Grupo R timely appealed.

 

 

A.   Relative priority of the Lenders’ mortgages as to Grupo R’s state-created liens

 

On appeal, the parties dispute whether the Lenders’ liens created by the nine ship mortgages take priority over Grupo R’s liens that arose from the attachment of the MAYA and MARANGO under Texas state law. The relative priorities of the Lenders’ and Grupo R’s rights determine how the proceeds from the judicial sale of the MAYA and MARANGO should have been allocated. The law of the forum provides the relative rankings of the liens, while Panamanian law governs the substance of the liens. The ranking of liens in the United States, from highest priority to lowest priority, is as follows:

 

 

1. Custodia legis expenses;

 

2. Seamen’s liens for wages;

 

3. Salvage and general average liens;

 

4. Tort liens;

 

5. Preferred ship mortgage liens;

 

6. Liens for necessaries under CIMLA;

 

7. State-created liens that are maritime in nature;

 

8. Maritime liens for penalty/forfeiture for violation of federal statutes;

 

9. Perfected non-maritime liens;

 

10. Attachment liens;

 

11. Maritime liens in bankruptcy.

 

 

Under this ranking regime, Grupo R’s rights are classified as “state-created liens that are maritime in nature,” while the Lenders’ liens are classified as “preferred ship mortgages.” Grupo R’s liens arose when it caused the MAYA and MARANGO to be attached under Texas state law. The Lenders’ mortgage liens, on the other hand, arose when Shanara and Marfield failed to pay the mortgages over the MAYA and MARANGO, which had been executed in Panama and registered with the PMA. The Commercial Instruments and Maritime Liens Act (“CIMLA”), 46 U.S.C. § 31301 et seq., defines a preferred ship mortgage as a: mortgage  .  .  . established as a security on a foreign vessel if the mortgage . . . was executed under the laws of the foreign country under whose laws the ownership of the vessel is documented and has been registered under those laws in a public register at the port of registry of the vessel or at a central office.

 

 

The parties do not dispute that the Lenders’ preferred ship mortgage liens outrank Grupo R’s state-created maritime attachment liens, and the district court confirmed those rankings in its findings of fact and conclusions of law. The threshold issue on appeal is whether the Lenders’ mortgages are valid and enforceable against third parties like Grupo R, allowing Lenders to exercise their priority over the proceeds of the judicial sale of the MAYA and MARANGO.

 

 

B.   Validity and enforceability of the preferred ship mortgages under CIMLA and Panamanian law 

 

Grupo R and the Lenders agree that CIMLA and Panamanian law are implicated in the resolution of this lawsuit. At trial, it was undisputed that (1) the Vessels are registered under Panama’s flag; (2) the PMA is the public register or central office charged with recording vessel mortgages in Panama; and (3) all nine of the Lenders’ mortgages were recorded with the PMA, reviewed and accepted by the PMA before their recordation, and reviewed again by the PMA when it issued certificates confirming the mortgages’ compliance with Panamanian law. Under CIMLA, “a mortgage on a foreign vessel is preferred so long as it was properly (1) executed and (2) recorded under the laws of the nation in which the foreign vessel is registered.” For a preferred ship mortgage, CIMLA provides a cause of action in federal court “on default of any term of the preferred mortgage.” The mortgagee may bring a civil action or an admiralty action in personam against the mortgagor or guarantors to recover a deficiency. The mortgagee may also “enforce the preferred mortgage lien in a civil action in rem for . . . a foreign vessel.” As noted above, the parties agree that each of the Lender’s mortgages was executed in Panama and registered with the PMA. Accordingly, the Lenders’ mortgages are properly classified as “preferred ship mortgages” under CIMLA.

 

 

(…) Courts frequently accept affidavits from foreign-law experts to guide their analyses of foreign law.” When there are conflicting opinions offered by experts on foreign law, “it is not the credibility of the experts that is at issue, it is the persuasive force of the opinions they expressed.

 

 

The district court directed the allocation of proceeds of the MAYA and the MARANGO pursuant to its conclusions regarding the liens’ relative priorities. The proceeds from judicial sale of the MAYA were to be allocated as follows: (1) $63,243.90 to Grupo R and $663,745.12 to Caterpillar for their custodia legis lien claims; and (2) any remaining proceeds to Eksportfinans for its First Preferred Vessel Mortgage over the MAYA. The proceeds from the credit sale of the MARANGO were to be allocated to Grupo R in the amount of $63,243.90 for its custodia legis lien claims, and the remainder of the Amended Security Bond released to Norway, KFW, and Caterpillar.

 

 

(…) We are also not convinced that compliance with Article 260’s highly technical requirements is dispositive in this case. We previously held that it is “well established that the validity of a mortgage is dependent only on the existence of a debt actually secured by the mortgage and not on the description of the debt contained in the instrument.”

 

 

Further, other circuits have explained that foreign law plays a more limited role in determining the validity and enforceability of foreign mortgages under CIMLA. In M/V Prodromos, the Third Circuit explained that “the stringent procedural requirements for perfecting domestic ship mortgages are not imposed on foreign ship mortgages . . . to provide a simplified procedure for enforcing mortgages without destroying substantive rights.”

 

 

Oil Shipping (Bunkering) B.V. v. Sonmez Denizcilik Ve Ticaret A.S., 10 F.3d 1015, 1023 (3d Cir. 1993) (holding that the Ship Mortgage Act—CIMLA’s precursor—“specifically speaks to a limited role for foreign law by making the preferred status of foreign mortgages dependent only on their compliance with the execution and registration requirements of the applicable foreign law”).

 

 

We conclude that the district court correctly held that the nine preferred ship mortgages at issue are enforceable under CIMLA and Panamanian law, and that the Lenders’ preferred ship mortgage liens enjoy priority over Grupo R’s state-created maritime attachment liens.

 

 

For the reasons detailed above, we AFFIRM the district court’s findings of fact and conclusions of law with regard to (1) the validity, enforceability, and relative priority of the parties’ liens following the judicial sale of the MAYA and MARANGO, and (2) the status of Caterpillar’s and KFW’s lien positions following the credit sale of the MARANGO.

 

 

 

Secondary Sources: Varian, Rank and Priority of Maritime Liens, 47 Tul. L. Rev. 751 (1973); G. GILMORE AND C. BLACK, THE LAW OF ADMIRALTY, 596 (2d ed. 1975); SCHOENBAUM, ADMIRALTY & MAR. LAW §9:5 (6th ed. 2020); CHRISTIAN BREITZKE, JONATHAN S. LUX, MARITIME LAW DESK HANDBOOK, Part II. Flag and Registration of Vessels and Mortgages of Vessels (Wolters Kluwer 2019, 2021). This text was not introduced into the record as an exhibit, but the district court was authorized to consider it under Rule 44.1 of the Federal Rules of Civil Procedure. FED. R. CIV. P. 44.1.

 

 

 

 

(U.S. Court of Appeals for the Fifth Circuit, March 24, 2023, Corporativo Grupo R SA DE C.V. v. Marfield Limited Inc., Docket No. 22-20345)