Fifth Circuit Holds No Basis for Admiralty Jurisdiction
When a Party Has Equitable Rather than Legal Claim to Title and Possession of a Vessel
In Gulf Coast Shell v. Newlin, the Fifth Circuit Court of Appeals held that the District Court erred in finding that they had admiralty jurisdiction over the claims raised by Gulf Coast Shell (Gulf) in regard to their interest in an oyster dredge located in Mexico, and vacated the judgment of the lower court.
Gulf brought claims against Newlin under Admiralty Rule D for possession and title of an oyster dredge in Mexico, breach of contract, breach of fiduciary duty, and wrongful conversion. Newlin, along with two others (Beken and Koy), intended to begin an oyster shell dredging venture in Mexico and distribute the shell aggregate in the United States. Newlin formed a Mexican corporation (Grupo) for the purposes of locating oyster shell deposits off the coast of Mexico. Beken and Koy purchased shares in Grupo and later formed a limited partnership (Gulf) for the purposes of distributing the oyster shells in the United States. When a dredge was located, the seller prohibited the sale to a U.S. entity and was instead sold to a Mexican entity owned by Newlin, intending to transfer the dredge to Grupo upon the dredge's refurbishment. Various entities paid for the repairs and refurbishment of the dredge. Prior to its completion, Newlin transferred title to an entity owned primarily by him because he claimed Koy and Beken had stopped paying for repairs.
In order to obtain admiralty jurisdiction in this case, the suit would have to come under Rule D of the Supplemental Rules for Certain Admiralty and Maritime Claims to obtain legal title to or repossess a vessel. A plaintiff seeking an action under Rule D must have legal title or a legal claim to possession of the vessel. A Rule D claim asserting only equitable interests with no other basis for admiralty jurisdiction cannot be a basis for jurisdiction. Here, the 5th Circuit held that Gulf has no basis for admiralty jurisdiction under Rule D for possession of the dredge because the claim brought by Gulf is equitable in nature and not related to a legal claim to title and possession of the vessel.
Alternatively, a plaintiff can obtain admiralty jurisdiction if the contract and tort claims are characterized as maritime in nature. A maritime contract "is one relating to a ship in its use as such, or to commerce or navigation on navigable waters, or to transportation by sea or to maritime employment." (J.A.R., Inc. v. M/V LADY LUCILLE, 963 F.2d 96 (5th C 1992). Here, there was no written contract regarding the transfer of the vessel. Because the contract for the transfer of title was oral in nature, the Court reasoned that the agreement did not relate in any meaningful way to commerce or navigation on navigable waters. Further, a tort is not cognizable in admiralty unless, "(1) it occurred on navigable water, or an injury suffered on land was caused by a vessel; and (2) the incident has a potentially disruptive impact on maritime commerce, or the general character of the activity giving rise to the incident shows a substantial relationship to traditional maritime activity." (Jerome B. Grubart, Inc. v. Great Lakes Dredge & Dock Co., 513 U.S. 527 (1985)). In this case, the torts alleged by Gulf (wrongful conversion and breach of fiduciary duty), stemmed from the party dispute regarding transfer of title, not how the vessel was being used.
Accordingly, the Fifth Circuit held that the interest Gulf had in possession of the dredge was equitable and an insufficient basis to obtain admiralty jurisdiction. Moreover, it would be improper for the court to exercise admiralty jurisdiction over Gulf because the torts claimed by Gulf did not relate to the vessel or maritime activity. The court concluded that the District Court erred in exercising proper admiralty jurisdiction over Gulf's claims.
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