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In 2004, the IMO hosted the International Conference on Ballast Water Management to address the problems associated with the introduction of non-native species into aquatic ecosystems when transported in the ballast water of oceangoing vessels.  The members adopted the International Convention for the Control and Management of Ships’ Ballast Water and Sediments. Before entering into force, the Convention required the ratification of thirty states, representing at least 35% of the world merchant shipping tonnage.  Twelve months after achieving ratification, the Convention becomes effective. Finland ratified the Convention on September 8, 2016, which brought the number of ratifying states to 52, with a combined merchant tonnage of 35.14%.  Accordingly, the Convention is to enter into force on September 8, 2017, and is expected to have a significant impact on vessels in international trade, requiring them to meet agreed minimum standards concerning biological and sediment materials contained in their ballast water.

Under the Convention, all ships trading internationally will be required to implement a Ballast Water Management Plan to meet the compliance requirements including the recently-approved IMO G9 Guidelines. Vessels over 400 gross tons must carry a ballast water record book that details the time, date and location of the filling and discharge of each tank, including the treatment applied to the ballast water.  According to a rather involved and frequently-changing timetable of implementation, vessels will be required to comply with the D1 or D2 standards.  Given the ongoing uncertainty with ballast water treatment issues, it is important and prudent for owners to develop contingency measures in their Ballast Water Management Plans to account for these uncertainties and to anticipate the differing infrastructure, equipment, and requirements at the various ports at which their vessels may call.

The D1 standard governs ballast water exchange: replacing the ballast water taken in from the last port with new sea water before arrival at the subsequent port.  The exchange must occur at least 200 nautical miles offshore and at a depth of 200 meters.  The D1 standard poses obvious difficulties for those vessels that travel within a limited geographical region and thus are rarely positioned a sufficient distance from shore and in waters of the requisite depth.

The more stringent D2 standard requires the installation and operation of an approved ballast water treatment system. The system must ensure that only negligible levels of viable biological materials remain in the vessel’s ballast water after treatment. New-build ships will be required to install and comply with the D2 standard from the Convention’s entry into force on September 8, 2017.  The implementation deadline for vessels currently in service, however, has recently been extended once again.  Existing ships will have to comply with the Convention’s D-2 standard by their next International Oil Pollution Prevention Certificate renewal (occurring every five years) following September 8, 2019.  This new extension will potentially push the compliance deadline for some existing vessels (depending on when the vessel must renew her IOPP certificate) until September 8, 2024.

For more information about these important changes in ballast water treatment requirements under the IMO Convention as well as the U.S. Coast Guard rules, and how to best navigate these upcoming compliance requirements, please do not hesitate to contact the authors George M. Chalos (e-mail: gmc@chaloslaw.com); George Gaitas (e-mail: georgegaitas@chaloslaw.com); or Sean D. Kennedy (e-mail: sdk@chaloslaw.com).

By:      CHALOS & Co, P.C. – International Law Firm
Briton P. Sparkman, Esq. & George M. Chalos, Esq.,

As Senator Russell Long, former chairman of the U.S. Senate Finance Committee, famously remarked, everyone’s concept of tax reform is “Don’t tax you, don’t tax me, tax that fellow behind the tree!”  And so it came to pass, when the U.S. Congress passed the Tax Reform Act of 1986, foreign ship owners, charterers and operators, by definition no part of any Representatives’ or Senators’ voting constituency, turned out to be the “fellow behind the tree.”

U.S. law requires that for each taxable year transportation income from transportation that begins or ends in the United States  is taxed at the rate of 4% on ½ of the freight or other income of voyages that include loading or discharging cargo in the U.S.A. (26 USC § 887 in conjunction with 26 USC § 863(c)(2) and (c)(3)).  Transportation income includes any income derived from, or in connection with the use (or hiring or leasing for use) of a vessel or aircraft, or the performance of services directly related to the use of a vessel or aircraft. This includes income from the participation in a bareboat charter, a time charter, a voyage charter and a revenue  pool.  Charter hire, freight, demurrage, etc.  are also subject to the tax.  When a vessel is chartered-out everyone along the line starting with the vessel owner, down to a bareboat charterer, the disponent owner, the voyage charterer, are responsible for payments of the tax on their  own respective earnings of  U.S. Source Gross Transportation Income.  It doesn’t matter how many intermediary sub-charterers are interposed between the registered owner and the last charterer down the chain.  Each must pay the tax on its own earnings.  The tax is payable annually together with the filing of the taxpayer’s annual tax return.

Notwithstanding, income derived by a corporation organized in a foreign country from the international operation of a ship is exempt from the tax if such foreign country grants an equivalent exemption to corporations organized in the United States. 26 U.S.C. § 883(a)(1).  The exemption may be based on domestic law of the foreign country, an exchange of diplomatic notes, or a tax treaty and on such a basis the exemption is widely available.   However, it is imperative in order to claim the exemption, for the company concerned to file an annual corporate tax return for the year the income was earned, and show that it is qualified for the exemption.  Accordingly, to either pay the tax or claim the exemption, it is necessary for the taxpayer who has earned U.S. Source Gross Transportation Income during the tax year to file the required tax return.  Foreign companies based overseas have until June 15 of each year to file for income earned in the previous year.  That deadline can be extended to December 15 with the filing of an application for an automatic extension by June 15.  Failure to file a tax return for any given year for which a company has earned U.S. Source Gross Transportation Income could result in exposure to payment of a fine of up to $ 10,000 and penalties.  Thus there are very good reasons for charterers who earn income from the U.S. trade to file each year to claim the exemption or pay the tax, and to file amended tax returns for years missed to bring themselves into compliance.

For more information about U.S. Source Gross Transportation Income and how it may apply to specific facts and circumstances, please do not hesitate to contact the authors George M. Chalos (gmc@chaloslaw.com) or Briton P. Sparkman (bsparkman@chaloslaw.com).

On June 5, 2017, the United States’ Attorney General Jeff Sessions issued a Memorandum to all Department of Justice components and ninety-four (94) United States Attorneys’ Offices prohibiting settlement payments to non-governmental, third-party organizations who were neither victims nor parties to the lawsuits. This reverses a practice that was encouraged during the Obama administration requiring companies to donate large amounts of money to outside groups as part of criminal and civil settlement agreements with the federal government.

“Effective immediately, Department attorneys may not enter into any agreement on behalf of the United States in settlement of federal claims or charges, including agreements settling civil litigation, accepting plea agreements, or deferring or declining prosecution in a criminal matter, that directs or provides for a payment or loan to any non-governmental person or entity that is not a party to the dispute.”  The new policy does not apply to payments that directly remedy the “harm that is sought to be redressed.” The policy also makes an exception for payments for legal or other professional services in connection with the case, and for payments expressly authorized by statute.

One of the emerging issues for the shipping industry will be to see how this policy is applied to criminal prosecutions under the Act to Prevent Pollution from Ships (“APPS”), 33 U.S.C. § 1901, et seq.  APPS is the U.S. codification of MARPOL 73/78 and it has been the regular practice of the Department of Justice to require significant community service payments to non-governmental third-party organizations.  The APPS prosecutions in the United States are almost always premised on record keeping violations, as it is clear the US courts lack jurisdiction over any unrecorded discharges outside of U.S. waters. It remains to be seen whether the Attorney General’s new policy will be strictly applied by the Department of Justice and whether non-governmental and/or non-profit groups with no relation to the cases will continue to be in-line to receive community service payments (or not).

To read the full text of Attorney General Sessions’ Memorandum, please click here.

For more information about MARPOL, APPS, and/or the Attorney General’s Memorandum, please do not hesitate to call on us at info@chaloslaw.com.

The business climate today is dominated by computers and cyber threats are becoming more and more common. The Business E-Mail Compromise (“BEC”) is a sophisticated scam targeting businesses working with foreign suppliers and/or businesses that regularly perform wire transfer payments. The E-mail Account Compromise (“EAC”) component of BEC targets the specific e-mail addresses of individuals or accounting departments that perform wire transfer payments. The scam is carried out by compromising legitimate business e-mail accounts through social engineering or computer intrusion techniques to induce the transfer of funds from legitimate businesses to fraudulent accounts.

We have seen an increase in exposure and claims from companies who engage in international transactions and deal with business counterparts around the world falling victim to these scams. In discussions with agents from the FBI Internet Crime Complaint Center, we have been advised that while most people are sensitive to the old version(s) of e-mail scams, think the “Nigerian Prince Scam” or the spam e-mail confirming that you have won large sums of money just by clicking a link, the new generation of the BEC/EAC scam are increasingly sophisticated.  International shipping in particular is a vulnerable target as the buyers and sellers in the transaction interact with each other primarily through e-mail.

The BEC/EAC scam is carried out by compromising legitimate business e-mail accounts in order to identify the individuals and protocols necessary to perform wire transfers. The basic scenario is that a business, which often has a long-standing business relationship with a supplier, is requested to wire funds for invoice payment to an alternate, fraudulent account. This request is usually made by e-mail and will appear to be from a legitimate address of what the victim company believes is their actual business partner.  However, these “spoof” emails are entirely fraudulent and not from the real supplier/seller at all. These fraudulent e-mails are well-worded, specific to the business and/or transaction being victimized, have copies of the invoice and other business documents relevant to the transaction (previously stolen from the compromised e-mail account), and do not raise suspicions as to the legitimacy of the request.  Charterers and Owners conducting numerous international transactions with bunker suppliers around the world are particularly susceptible to these e-mail scams.  The reasons why these scams are successful are numerous, including:

• The targeted victims regularly complete deals over the internet;
• Shipping companies transact most deals through e-mail and international wire transfers;
• The e-mail communications are conducted in English, which often times is not the primary language of the individuals completing the transaction, so grammatical and/or spelling errors are not a red flag;
• Shipping companies and service providers often have numerous affiliates, subsidiaries, and/or related companies located in countries around the world (all of which would have bank accounts);
• The shipping industry is uniquely sensitive to pre-judgment arrest/attachment of assets and bank accounts around the world, so many companies in the industry have numerous legitimate business bank accounts in several different jurisdictions.

• Avoiding free web-based e-mail accounts.  Establish a company domain name and use it to create secure company e-mail accounts.
• Be suspicious of e-mails requesting secrecy or which pressure you to take quick/urgent action.
• Consider additional financial security procedures, such as a two-step verification process for sending wire transfers, especially when asked to send to a new or unknown account.  For example, make a telephone call to the accounting department of the contractual partner to verify the account details.  The phone call should be to a phone number you have previously been provided; DO NOT use a phone number given in the email requesting the wire transfer.
• Prior to initiating the wire transfer request the account holder name and address.
• Beware sudden changes in business practices. If a business contact suddenly asks to be contacted via their personal e-mail address or if there were previously three (3) or four (4) email addresses on the chain, the request may be fraudulent.
• Carefully scrutinize all e-mail requests for transfers of funds, especially the e-mail addresses. Often the e-mail address will be similar, but not exactly the same, as the actual e-mail address for the legitimate supplier/seller.

If funds are transferred to a fraudulent account, it is important to act quickly. Immediately contact your financial institution upon discovering the fraud. Request that your financial institution contact the corresponding financial institution where the transfer was sent, so a hold may be placed on the account before the funds are withdrawn.

If you believe you have been a victim of the BEC/EAC scam, we may be able to help. Chalos & Co, P.C. has experience liaising with the FBI, working with local state authorities, and subpoenaing bank records and can aid in returning the funds and/or freezing the fraudulent account.

For more information, please do not hesitate to call on us at info@chaloslaw.com.

On May 12, 2017, the United States Court of Appeals for the Fifth Circuit affirmed a decision from the Southern District of Texas in Davis v. Dynamic Offshore Res., L.L.C., No. 16-40059, 2017 U.S. App. LEXIS 8464 (5th Cir. 2017), granting summary judgment in favor of Dynamic Offshore Resources (“Dynamic”) against a crane mechanic employed by an independent contractor. In Davis, Plaintiff Thomas Davis (“Davis”) brought suit against Dynamic for negligence and gross negligence. Davis was allegedly injured when, while being lifted in a personnel-basket transfer to an offshore platform in the Gulf of Mexico, the personnel basket dropped six to eight feet.

The Fifth Circuit, in its decision, held that “[i]t is well established that a principal is not liable for the activities of an independent contractor committed in the course of performing its duties under the contract.” Bartholomew v. CNG Producing Co., 832 F.2d 326, 329 (5th Cir. 1987). The Court recognized two exceptions to this general rule: (1) “a principal may not escape liability arising out of ultrahazardous activities which are contracted out to an independent contractor;” and (2) “a principal is liable for the acts of an independent contractor if he exercises operational control over those acts or expressly or impliedly authorizes an unsafe practice.” Id. The Court held that a personnel-basket transfer was not ultrahazardous, despite high winds during the transfer. Louisiana law considers only whether the activity is per se ultrahazardous, not whether it is ultrahazardous in specific conditions. See O’Neal v. Int’l Paper Co., 715 F.2d 199, 201-02 (5th Cir. 1983). Furthermore, the Court found that Dynamic did not order the personnel-basket transfer, but that Davis requested it. The operator of the personnel-basket transfer was an independent contractor, and Dynamic was entitled to rely on their expertise. The Court held that Dynamic did not authorize, either expressly or impliedly, an unsafe working condition that caused injury to Davis.

While the decision in Davis cited to and relied upon Louisiana law, the general rule that a principal is not liable for torts of an independent contractor (and the exception to the rule) is the same under general maritime law. See Richard v. Anadarko Petroleum Corp., 2014 U.S. Dist. LEXIS 35483, *26 (W.D. La. 2014) citing Landry v. Huthnance Drilling Co., 889 F.2d 1469, 1471 (5th Cir. 1989) (internal quotations omitted)(“It is well-established under general maritime law that a principal is not liable for the torts of an independent contractor unless the principal exercises operational control over or expressly or impliedly authorizes the independent contractor’s actions.”).

To read the full opinion of the Fifth Circuit, please click here.

For more information about the Court’s decision, please do not hesitate to call on us at info@chaloslaw.com.

On April 13, 2017, the United States Court of Appeals for the Eleventh Circuit affirmed a decision from the Southern District of Georgia in Miller v. Navalmar (UK) Ltd., No. 16-11967, 2017 U.S. App. LEXIS 6372 (11th Cir. 2017), granting summary judgment in favor of the owner of the vessel CARRARA CASTLE and its charterer against a longshoreman injured during a loading operation.  In Miller, Plaintiff Tyrone Miller brought a negligence action under Section 905(b) of the Longshore and Harbor Workers’ Compensation Act (LHWCA) against defendants Navalmar (UK) Ltd. (“Navalmar”) and Grieg Star Shipping II AS (“Grieg”). Miller was seriously injured after falling thirty-two feet when a plywood board that he had placed over a gap in the cargo stack at the instruction of the stevedores SSA/Cooper Stevedoring (“SSA”) gave way.

The Eleventh Circuit, confirmed that while there is no general duty of supervision or inspection and may rely generally on the stevedore to avoid exposing longshoremen to unreasonable hazards, there are three (3) distinct duties owed by a shipowner during cargo operations. These duties are (1) the turnover duty, (2) the active control duty, and (3) the duty to intervene. See Howlett v. Birkdale Shipping Co., 512 U.S. 92, 98 (1994).  Miller alleged breach of the active control duty based on Grieg’s written cargo safety and storage procedures which Plaintiff alleged required a duty of care toward longshoremen engaged in cargo operations.    The Court held that Grieg’s mandatory loading instructions (provided to SSA) were consistent with industry practice and that Grieg was still relying on SSA for safe cargo loading operations. The passive guidance did not constitute direct involvement in loading operations, which is required before an active duty is imposed on the shipowner or charterer.  As there was no direct involvement, the Court found Grieg did not owe Miller a duty of reasonable care.

Miller also alleged that Grieg and Navalamar breached the duty to intervene because they knew a fall hazard existed on the vessel and were required to remedy the condition when it became apparent that stevedore SSA failed to do so.  A shipowner has a duty to intervene to protect a longshoreman once cargo operations have begun, even if it is not actively involved. However, this duty to intervene requires that the shipowner not only become aware that the ship or its gear poses a danger to the longshoreman, but also that the stevedore is failing, unreasonably, to protect the longshoremen. Lampkin v. Liber. Athene Transp. Co, 823 F.2d 1497, 1501 (11th Cir. 2014). The Court held that even if the defendants had knowledge of a dangerous condition in the CARRARA CASTLE’s hull, Miller made no showing they had actual knowledge of the stevedore’s failure to remedy the problem. The duty to intervene is exceedingly narrow and “[o]only the most egregious decisions by the stevedore are ‘obviously improvident.’” Harris v. Pac. Gulf-Marine, Inc., 967 F. Supp. 158, 165 (E.D. Va. 1997). The Eleventh Circuit ultimately held that the district court did not err in finding the Defendants lacked actual knowledge regarding the stevedore’s inability, or failure, to remedy a dangerous hazard on the vessel, and consequently they had no duty to intervene in a routine cargo loading operation.

To read the full opinion of the Eleventh Circuit, please click here.

For more information about the Court’s decision, please do not hesitate to call on us at info@chaloslaw.com.

On March 9, 2017, The Supreme Court of the State of Washington held that punitive damages are available to plaintiffs under a general maritime unseaworthiness claim. See Tabingo v. Am. Triumph LLC, No. 92913-1, 2017 Wash. Lexis 328 (Mar. 9, 2017). In Tabingo, Plaintiff Allan Tabingo, brought a Jones Act negligence claim and multiple general maritime claims, including one for unseaworthiness, against defendants American Triumph LLC (“American Triumph”) and American Seafoods Company LLC (“American Seafoods”). Tabingo was working as a deckhand on a fishing trawler when he had two fingers amputated by a hydraulic hatch due to a broken control handle. Tabingo alleged that American Seafoods knew about the broken control handle for two (2) years prior to the incident, but failed to repair it. Tabingo sought to recover punitive damages under his general maritime claim for unseaworthiness.

Defendants challenged Tabingo’s claim for punitive damages. The Superior Court held that based on Washington state and federal law, a seafarer is not entitled to punitive damages under a general maritime claim because the measure of damages available in a Jones Act negligence claim and unseaworthiness claim are identical. Tabingo filed a direct interlocutory petition for review to the Supreme Court of Washington, which was granted.

The Supreme Court of Washington reversed the Superior Court, holding that a seafarer may recover punitive damages under a common-law unseaworthiness claim. Defendants argued that Miles v. Apex Marine Corp., 498 U.S. 19 (1990) was controlling. In Miles, the family of a dead seaman sought to recover punitive damages for a wrongful death claim, which the U.S. Supreme Court held were not available as Congress had explicitly limited wrongful death claims to pecuniary loss. The Washington State Supreme Court rejected the application of Miles and held that a more recent U.S. Supreme Court case, Atlantic Sounding Co. v. Townsend, 557 U.S. 404, 129 S. Ct. 2561 (2009), was applicable. The Court was persuaded that Townsend was controlling because in that case, the U.S. Supreme Court held that a seaman could recover punitive damages from his employer’s willful and wanton disregard for its maintenance and cure obligations, i.e. another general maritime claim, whereas Miles was limited to wrongful death claims.

The Court reasoned that a seafarer could bring both a Jones Act negligence claim and a common-law unseaworthiness claim and recover under both theories in the same action. The Court also held that such a result was warranted since the Jones Act was not designed to narrow protection to seafarers but, rather to enlarge it. Since Congress has not directly addressed the damages available for an unseaworthiness claim, punitive damages are not barred from recovery. Finally, the Court concluded with a policy argument that its holding was consistent with the historic charge to Courts to protect seafarers as wards of the admiralty courts.

To read the full opinion of the Supreme Court of Washington, please click here.

For more information about the Court’s decision, please do not hesitate to contact us at info@chaloslaw.com.

On January 30, 2017, Michelle Otero Valdés of Chalos & Co, P.C., spoke as part of the American Conference Institute’s 6^th Annual Forum on Admiralty and Maritime Claims and Litigation in Miami, Florida.  Mrs. Otero Valdés focused her presentation on a number of decisions from the Second, Third, and Eleventh Appellate Circuits regarding personal jurisdiction over foreign entities.  Most notably, Mrs. Otero Valdés discussed the Third Circuit’s finding in Athos I that a terminal could be held liable for damage to a vessel which occurred on the way to the terminal or at anchorage under a safe berthing warranty. See Frescati Shipping Co. v. Citgo Asphalt Ref. Co., 718 F.3d 184 (3d. Cir. 2013). This finding implies new obligations for charterers and wharfingers to scan for and detect possible obstructions to avoid breach of warranty and negligence liabilities.

In the Second Circuit, she explained a recent finding that a diving accident in navigable waters can bring admiralty tort jurisdiction because of the possibility of such an accident affecting other vessels and disrupting maritime commerce.  See Germain v. Ficarra, 824 F.3d 258 (2d. Cir. 2016).  Additionally, the Second Circuit also denied personal jurisdiction where a foreign entity that merely had a representative office, which was not enough to show the company was “at home” in the state.  See CLdN Cobelfret Pte. Ltd. v. ING Bank N.V., 2016 U.S. Dist LEXIS 159788 (S.D.N.Y. 2016).  Finally, Mrs. Otero Valdés discussed a recent decision within the Eleventh Circuit finding that the Court did not have jurisdiction when a passenger sued for an injury occurring on an excursion during a cruise because the excursion company’s agreement to indemnify a cruise line, along with various other contacts in the state, did not establish general jurisdiction over that company.  See Thompson v. Carnival Corp.,  174 F.Supp.3d 1327 (S.D.F.L. 2016).

To learn more about the American Conference Institute, please visit https://www.americanconference.com/

For more information about this event or Mrs. Otero Valdés’ discussion, please do not hesitate to call on us at info@chaloslaw.com.

On September 28, 2016, the U.S. District Court for the District of Puerto Rico, in Q.B.E. Segueros v. Moralex-Vazquez, 2016 U.S. Dist. LEXIS 133822 (D. P.R. 2016), held that the recent abolishment of the uberrimae fidei doctrine by the U.K. Marine Insurance Act of 2015 does not compel U.S. courts to follow so as to ensure uniformity in the marine insurance market.

Plaintiff QBE Segueros (“QBE”) brought an action against Carlos Morales-Vazquez (“Morales”), seeking a declaratory judgment that Morales’s marine insurance policy was void ab initio, because Morales breached a “warranty of truthfulness.” Morales counterclaimed, alleging breach of contract and entitlement to consequential damages.  Morales later moved for a judgment on the pleadings.

QBE had issued to Morales a marine insurance policy. The policy stated that it “shall be void and without effect” if the insured made a false statement or misrepresentation with respect to the insurance. During the term of the policy, Morales’s yacht sustained fire damages, and Morales filed a claim with QBE. In the claim, Morales failed to disclose a 2010 incident giving rise to a claim to a separate insurer, when asked a question of whether he had any accidents or losses in connection with a vessel he owned.

Morales pointed out that the U.K. Insurance act of 2015 abolished the uberrimae fidei doctrine and argued that the U.S. Supreme Court had instructed federal courts to adopt uniform and harmonious application of American and English marine insurance law.  The “Uberrimae fidei” doctrine (meaning “of the utmost good faith”) requires the insured to disclose to the insurer all known circumstances that materially affect the insurer’s risk.  Thus, under the doctrine, when an insured fails to disclose to the insurer all circumstances known to it and unknown to the insurer which ‘materially affect the insurer’s risk,’ the insurer may void the marine insurance policy at its option.

The District Court rejected Morales’s argument reasoning that uberrimae fidei is a recognized federal law in the First Circuit and is bound by same until otherwise instructed by the First Circuit Court of Appeals or by the U.S. Supreme Court. The Court recognized that “is true that [the Supreme Court] and other American courts have emphasized the desirability of uniformity in decisions here and in England in interpretation and enforcement of marine insurance contracts”, but the Supreme Court made it clear in Standard Oil Co. v. United States, 340 U.S. 54, 58 (1950), that “this does not mean that American courts must follow House of Lords’ decisions automatically.”

For more information, please do not hesitate to contact us at info@chaloslaw.com.

On August 9, 2016, the United States Court of Appeals for the Ninth Circuit affirmed a decision from the Central District of California in Mitsui Sumitomo Insurance USA, Inc. et. al. v. Tokio Marine & Nichido Fire Insurance Company, Ltd., No. 14-56337, granting summary judgment against one insurance company in a dispute over equitable contribution claims.

Plaintiffs-Appellants Mitsui Sumitomo Insurance USA, Inc. and Mitsui Sumitomo Insurance Company of America (collectively referred to as “Mitsui”) brought an action against Defendant-Appellee, Tokio Marine & Nichido Fire Insurance Company (“Tokio”), for equitable contribution, under the assumption that both carriers provided coverage for the same level of risk. Precedent had held that where two (2) or more insurers independently provide primary insurance on the same risk for the insured, the carrier who pays the loss or defends a lawsuit against the insured is entitled to equitable contribution from the other insurer. However, the Court found that Tokio and Mitsui did not share the same level of risk, because Tokio was providing an excess policy, whereas Mitsui was the primary insurer. For that reason, Mitsui’s claim failed and the district court granted summary judgment in favor of Defendant-Appellee Tokio.

In addition to the contribution claim, Mitsui filed a bad faith claim for improper venue against Tokio pursuant to F.R.C.P. 12(b)(3). The parties had freely negotiated the forum-selection clause, and ultimately selected Japan as the forum to resolve any disputes and agreed that Japanese law would apply. In its ruling, the Ninth Circuit stated that forum selection clauses are prima facie valid and should not be set aside unless the party challenging enforcement of such a provision can show that the clause is unreasonable under the circumstances. The Ninth Circuit found no such showing by Mitsui and affirmed the district court’s dismissal of the bad faith claim. Finally, the Ninth Circuit denied Tokio’s request for attorneys’ fees, stating that Tokio had provided no statutory authority that entitled it to fees.

Accordingly, the Ninth Circuit held that because Mitsui and Tokio did not share the same risk, Mitsui’s claim for equitable contribution must fail, and affirmed the district court’s decision.

To read the full opinion of the Ninth Circuit, please click here.

For more information about the Court’s decision, please do not hesitate to contact us at info@chaloslaw.com.