3rd Circuit Court of Appeals Deals US Government a Blow in Finding Ship Owners’ Statutory and Contract Claims for Damages to Proceed Before US District Court

On November 16, 2021, the Third Circuit Court of Appeals issued a precedential landmark ruling in Nederland Shipping Corporation v. United States of America, No. 20-2269 reversing the district court’s dismissal of damage claims against the government for lack of subject matter jurisdiction and remanding the matter to the U.S. District Court for the District of Delaware for further proceedings.  The NEDERLAND REEFER (the “Vessel”) arrived at the Port of Wilmington, Delaware on February 20, 2019 to discharge a cargo of refrigerated bananas from Chile. Following a shipboard inspection on February 21-22, 2019; a US Coast Guard Captain of the Port Notice Letter dated February 22, 2019 was issued advising that the Vessel’s departure clearance was being withheld and the Vessel was being detained pursuant to 33 U.S.C. § 1908(e) of the Act to Prevent Pollution from Ships (APPS – 33 U.S.C. § 1901, et seq.).  The Owner and Operator of the Vessel acceded to the government’s demands for an “Agreement on Security” to get the vessel back in service and provided, inter alia, a surety bond totaling $1,000,000 which was answerable for any claims in rem against the Vessel; agreed to continue to employ, house, feed, insure and pay total wages of the thirteen (13) detained sailors; agreed to waive personal jurisdiction defenses; and agreed the security would stand in place of the res.  In exchange, the United States agreed to allow the Vessel to depart and agreed to not arrest, seize, or attach the Vessel or any other property of the ship owner or operator.

Despite the Owner and Operator promptly meeting all the obligations in the Agreement on Security, the government unreasonably delayed the release of the Vessel for thirty-six (36) days.  Nederland Shipping Corporation (“Nederland”) commenced an action in the District of Delaware seeking to hold the government liable for breach of the Agreement on Security and seeking an award for damages as set out at 33 U.S.C. § 1904(h), which provides: “A ship unreasonably detained or delayed by the Secretary acting under the authority of this chapter is entitled to compensation for any loss or damage suffered thereby.”

The government moved to dismiss the lawsuit for lack of subject matter jurisdiction.  District Judge Andrews agreed, ruling that there was no subject matter jurisdiction over the dispute, because the Agreement on Security was not a maritime contract and 33 U.S.C. 1904(h) did not include a waiver of sovereign immunity.  The district court further found that any cause of action, whether brought as a breach of contract or statutory claim must be brought in the Federal Court of Claims pursuant to the Tucker Act. Nederland Shipping Corp. v. United States, 456 F. Supp. 3d 584, 2020 U.S. Dist. LEXIS 76072, 2020 WL 1989166 (D. Del. April 27, 2020).

Nederland appealed the decision to the Third Circuit Court of Appeals.  In reversing the district court, the Third Circuit succinctly summarized the issues: “The fight over the contract claim is thus whether it is a maritime claim and so properly subject to admiralty jurisdiction. As to the APPS statutory claim, the fight is whether 33 U.S.C. § 1904(h) waives sovereign immunity.” p. 10.  The Third Circuit answered both questions affirmatively and reversed the district court on both causes of action.

Specifically, the Third Circuit ruled that the Agreement on Security is a maritime contract with the primary objective being to return the vessel to her maritime trade.   The Court summarized, “the essential character and purpose of the Agreement was not to secure the Vessel and crew in port; that was already done. The primary objective of the Agreement was rather to set the Reefer free to pursue maritime commerce.” (p. 13) (emphasis added).   The Court went on to explain that the Agreement has a “genuinely salty flavor.”

The Circuit Court further found that Nederland Shipping is entitled to pursue its statutory cause of action under 33 U.S.C. §1904(h) in the district court, as the statute waived sovereign immunity as Congress provided a cause of action available for any ship unreasonably delayed or detained by the government  (stating “[N]o other actor could logically be held liable. The federal government causes the unreasonable detention, and the federal government thus provides compensation for the resulting loss or damage.”).

The Third Circuit rejected the government’s argument that the claims were to be exclusively heard by the Federal Court of Claims under the Tucker Act (28 U.S.C. § 1491(a)(1)).  “Claims premised upon statutes that provide for independent causes of action and that waive the government’s sovereign immunity need not be channeled through the Tucker Act.”  The Third Circuit held that the after-the-fact remedy provided by 33 U.S.C. 1904(h) is such a statute that provides an independent cause of action and therefore jurisdiction for the claim exists in the district court.

George M. Chalos, Briton P. Sparkman, and Chalos & Co, P.C. represent Nederland Shipping Corporation in this matter.  George M. Chalos presented oral argument the panel for the Third Circuit Court on April 14, 2021.  To listen to the oral argument, click here.

To read a copy of the Third Circuit’s Opinion, click here.

For more information about the Court’s decision and how it may apply to specific facts and circumstances, please do not hesitate to contact us at info@chaloslaw.com.