The Effects of a Typo: Inconsistent Vessel Value Results in Insufficient Security.
Star & Crescent Boat Co. v. Sunsplash Marina LLC, 2021 U.S. Dist. LEXIS 29054, 2021 WL 568786 (S. D. Cal. Feb. 165, 2021)
By: Dylan Hoke
In a limitation action brought in the United States District Court for the Southern District of California, the Plaintiff in Limitation, Star & Crescent Boat Company (“Star”), provided insufficient security when the stipulated amount of the value of the vessel and the amount on the letter of undertaking differed by $25,000.[1] This difference resulted in the district court rejecting the provided security, denying the Plaintiff in Limitation’s request for a stay/injunction of the state court action, and denying the request for an issuance of a notice of the limitation action to potential claimants.
Star sought to limit its liability pursuant to the Shipowners Limitation of Liability Act[2] from an incident in which a passenger aboard its vessel on a tour of San Diego Bay allegedly sustained traumatic brain injuries when the passenger’s safety belt came undone during a high-speed turning maneuver. The injured passenger filed suit in San Diego Superior Court on July 31, 2020, giving notice to Star on the same day. Star filed the limitation action on January 28, 2021 within the requisite 6-month period[3]. On January 29, 2021, Star filed an ad interim stipulation for the value of the vessel and costs, a letter of undertaking, and application for injunction of the state court actions, and a notice of complaint for exoneration of or limitation of liability.
Under the Limitation Act Congress has authorized a vessel owner to bring a claim in a district court of the United States to limit its liability for damage or injury, to the value of the vessel and its freight, provided that the loss was incurred without their privity or knowledge.[4] Once the owner commences a limitation action, the owner must provide security for the benefit of the claims in an amount “equal to the value of the owner’s interest in the vessel and pending freight, or approved security.”[5] While the security is usually deposited with the court or a court appointed trustee, the Supreme Court has allowed the plaintiff in limitation to stipulate to the value of the vessel.[6] Such stipulation will qualify as a sufficient security if it is backed by a letter of undertaking.[7] In its limitation complaint, Star submitted a declaration from an accredited marine surveyor that appraised the vessel at $775,000. Rather than depositing that amount with the court, Star filed the ad interim stipulation for that amount along with a letter of undertaking. However, while the complaint, declaration and stipulation reference the vessel’s value as being $775,000, the letter of undertaking itself only undertakes an obligation for $750,000. While the district court opined about the reasons for the inconsistency, whether a typographical error or Star’s intention to cover the difference, the stipulation did not provide any, and the court ultimately found that the security was insufficient because it was not equal to the value of the vessel. Additionally, because approval of the security is a condition precedent, the district court denied Star’s request for an injunction and notice without prejudice to Star re-submitting the stipulation, letter of undertaking, and application for injunction explaining and/or remedying the discrepancy in value.
While the district court allowed Star to correct its mistake, it will be interesting to see if the error could result in dire consequences, nonetheless. Specifically, the court’s ruling that Star provided insufficient security has pushed Star outside the required 6-month window to file a limitation action. While the 6-month window might merely be a procedural requirement, it could allow for an interesting avenue for the injured passenger to ultimately challenge the limitation proceeding and file a motion to dismiss altogether.
[1] Star & Crescent Boat Co. v. Sunsplash Marina LLC, 2021 U.S. Dist. LEXIS 29054, 2021 WL 568786 (S. D. Cal. Feb. 165, 2021).
[2] 46 U.S.C. § 30501 et seq.
[3] 46 U.S.C. § 30511(a).
[4] In re Complaint of Ross Island Sand & Gravel, 226 F.3d 1015 (9th Cir. 2000).
[5] 46 U.S.C. § 30511(b).
[6] Hartford Acc. & Indem. Co. of Hartford v. S. Pac. Co. 273 U.S. 207, 218-19 (1927).
[7] See Chan v. Soc’y Expeditions, Inc., 123 F.3d 1287 (9th Cir. 1997).
