The US Court of Appeals for the Fifth Circuit recently upheld the dismissal of a vessel owner’s limitation of liability action due to the vessel owner’s failure to provide proper notice to potential claimants. Specifically, the Fifth Circuit’s opinion in In re Prosper Operators, Inc. concluded that dismissal was proper because the vessel owner failed to publish notice of the limitation action in a newspaper as required by the district court and pursuant to Supplemental Rule F(4) of the Federal Rules of Civil Procedure.^[1]

An action for “Limitation of Liability” under 46 U.S.C. § 30501, et seq., allows a vessel owner “to limit liability for damage or injury, occasioned without the owner’s privity or knowledge, to the value of the vessel or the owner’s interest in the vessel.”^[2] In order for a vessel owner to seek limitation of liability in federal court, the vessel owner must file the limitation action within six months of receiving written notice of a claim.^[3] After the complaint for limitation of liability is filed, the vessel owner must comply, inter alia, with the notice and publication requirements of Supplemental Rule F.

Supplemental Rule F requires that notice of the vessel owner’s limitation action be issued to all potential claimants. In particular, Supplemental Rule F(4) requires that notice be issued to all persons asserting claims against the vessel owner related to the incident at issue, instructing them to file their respective claims in the federal limitation action. Supplemental Rule F(4) further requires that notice be published in a newspaper or newspapers as the court may require, with the publication running once a week for four successive weeks prior to the deadline to file claims in the limitation action.

In In re Prosper Operators, Inc., the vessel owner provided notice of the limitation action to a known claimant by letter. The vessel owner failed, however, to publish notice of the limitation action in a newspaper, as directed by the district court. The claimant filed a motion to dismiss the limitation action, arguing that the vessel owner failed to provide proper notice under Supplemental Rule F. In response, the vessel owner argued that its neglect should be excused because it believed the district court would send and publish the notices. In an order dated August 14, 2017, the district court denied the motion to dismiss on the grounds that the claimant had received actual notice of the limitation action. The district court’s order further explained the vessel owner’s responsibility to publish notice in the newspaper and to mail notice to all potential claimants.

Two years later, on February 20, 2019, the vessel owner filed a motion seeking an extension of time to publish notice of the limitation action in the newspaper. The claimant opposed the motion for extension and filed another motion to dismiss, arguing that the vessel owner failed to fulfill its notice and publication obligations under Supplemental Rule F. The district court denied the vessel owner’s request for extension and granted the claimant’s motion to dismiss on the grounds that (1) the vessel owner failed to publish notice to potential claimants, even after the court explained the vessel owner’s responsibility to do so; (2) the vessel owner failed to provide a sufficient excuse for its two years of inaction; and (3) the vessel owner did not dispute that it could seek limitation of liability relief as a defense in the state court proceeding.

Upholding the district court’s ruling, the Fifth Circuit clarified that the notice and publication requirements of Supplemental Rule F “are not excusable ‘technicalities.’”^[4] Because the notice and publication requirements “are designed to warn potential claimants that they must file their claims within the monition period or lose them,” the Fifth Circuit explained that compliance with such requirements “is not discretionary.”^[5] As such, the Fifth Circuit found the vessel owner’s failure to timely publish notice of the limitation action to be sufficient grounds for dismissal.

The Fifth Circuit further noted that a balance of equities supported dismissal of the limitation action. The claimant’s lawsuit in state court, which had already been stayed for three years during the pendency of the limitation action, would only be further delayed if the vessel owner was granted more time to satisfy the publication requirement. Moreover, the vessel owner was able to pursue limitation as a defense in state court.^[6] Therefore, the Fifth Circuit concluded that denying the vessel owner “benefits of the Limitations Act in federal court” fell within the district court’s “equitable latitude.”

The In re Prosper Operators, Inc. opinion serves as a warning to vessel owners seeking to limit liability, particularly in a single-claimant personal injury case. Although the parties may not anticipate multiple claims in connection with an incident, a vessel owner must adhere to the strict notice and publication requirements of Supplemental Rule F to maintain a limitation action. Failure to comply with these provisions may result in dismissal of the limitation action, especially considering the ability to assert limitation of liability as an affirmative defense in state court.

[1] Prosper Operators, Inc. v. Navarre (In re Prosper Operators, Inc.), Case No. 19-30918, 2020 U.S. App. LEXIS 17774 (5th Cir. June 4, 2020).

[2] Lewis v. Lewis & Clark Marine, Inc., 531 U.S. 438, 446 (2001).

[3] 46 U.S.C. § 30511(a).

[4] In re Prosper Operators, Inc., 2020 U.S. App. LEXIS 17774 (emphasis added).

[5] Id. The Fifth Circuit further noted that another entity may be considered a “potential claimant” as a joint tortfeasor contributing to the injury and incident at issue. Specifically, the Fifth Circuit noted that the joint tortfeasor may assert a claim for tort indemnity against the vessel owner, citing Odeco Oil & Gas Co., Drilling Div. v. Bonnette, 74 F.3d 671, 675 (5th Cir. 1996) (“[P]arties seeking indemnification and contribution from a shipowner must be considered claimants within the meaning of the Limitation Act.”). Although the vessel owner argued that the joint tortfeasor could not be a potential claimant, the Fifth Circuit pointed to the joint tortfeasor as an example of how a party might suffer prejudice from failure to receive timely notice of the limitation action by publication.

[6] Id. (citing Karim v. Finch Shipping Co., 265 F.3d 258, 263 (5th Cir. 2001) (“[A] shipowner can set up [limitation] as a defense . . . in any court, including a state court.”)).