Fifth Circuit Affirms Dismissal of Limitation Action for Failure to Comply with Notice Provisions

The Limitation of Liability Act of 1851 entitles a vessel owner to limit its liability for most claims arising out of a maritime casualty to the value of the vessel and its pending freight at the time of the casualty, so long as the owner lacked privity or knowledge of whatever alleged negligence or unseaworthiness caused the loss. It also allows a vessel owner to initiate a concursus proceeding in federal court and require claimants to file their claims in the limitation action. Although a vessel owner can also assert limitation of liability as a defense to a suit filed in state court, federal court is often the favored jurisdiction and vessel owners must be sure to carefully comply with the applicable procedural rules. Among the various procedural rules a vessel owner must comply with are notice provisions designed to make potential claimants aware of the action. Failure to comply with these rules could undermine a viable federal court limitation action and leave the vessel owner defending a lawsuit in a less favorable jurisdiction.

In the case In re Prosper Operators, Inc., 19-30918, 2020 WL 3026401 (5th Cir. June 4, 2020), the United States Fifth Circuit recently affirmed the dismissal of a limitation of action for failure to comply with one of the notice provisions contained in Supplemental Rule of Civil Procedure Rule F(4).

Underlying Personal Injury Claim

The litigation arose out of a personal injury to a well operator, Navarre, employed by Prosper Operators, Inc. Navarre alleged he was injured when his boat began to float away from a well platform and he attempted to jump onto the boat from the platform. He alleged a defective condition of the platform and an unseaworthy condition of the vessel caused his injuries. Navarre filed suit in state court, asserting personal injury claims under the Jones Act. Prosper then filed a limitation of liability action in the Western District of Louisiana. The district court issued an order approving the limitation action and directing Prosper to send notice of its action to non-claimants and to publish notice of its action in a newspaper for four weeks prior to April 14, 2017.

Actual Notice Initially Prevents Dismissal

Navarre was notified of the limitation action by correspondence from Prosper’s counsel but Navarre sought to dismiss Prosper’s limitation action under Federal Rule of Civil Procedure 12(b)(5) because he alleged that the letters were insufficient service under Rule 4. Prosper argued that any neglect on its part was excusable because it believed that the Court would send out the notice of its limitation action. However, the Court explained that it was Prosper’s duty to publish notice in the newspaper and to mail notice to claimants. The Court nonetheless denied the Motion to Dismiss because Navarre had actual notice of the limitation action through the correspondence.

Prosper Seeks Extension of Time

Approximately two years later in February 2019, Prosper sought an extension of time to publish notice in the newspaper. Navarre opposed the Motion for Extension of Time and again sought dismissal of the action, arguing that Prosper failed to comply with Supplemental Rule F(4) requiring publication. The magistrate judge granted the Motion for Extension of Time to publish notice in the newspaper but Navarre filed an objection to that order. The district judge subsequently vacated the magistrate’s order, denied the extension of time, and granted Navarre’s Motion to Dismiss the action.  Prosper appealed.

Fifth Circuit Affirms Denial of Extension and Dismissal

On appeal, the Fifth Circuit discussed a vessel owner’s right to seek limitation of liability and Supplemental Rule F(4)’s requirement that notice be published in a newspaper as directed by the court once a week for four successive weeks prior to the date fixed for the filing of claims. The purpose of the notice provision is to inform potential claimants of the action and that they must file a claim within the prescribed period or be barred from pursing that claim. Compliance with the notice provisions is not discretionary.

The Fifth Circuit ultimately determined that the district court’s ruling denying an extension of time and dismissing the limitation action was not an abuse of its discretion. The Fifth Circuit found that Navarre would be prejudiced by such an extension as his state court action had been stayed for three years during the pendency of the limitation action and would stand to be further delayed by an extension. The Fifth Circuit noted that it has encouraged dismissal of cases in pursuit of judicial economy in other situations, such as where a vessel owner failed to post a bond in accordance with Supplemental Rule F(1). The Fifth Circuit determined that this was a case where dismissal in favor of judicial economy was appropriate in light of Prosper’s failure to comply with court orders and its years-long delay of the state court action.

Importantly, the Fifth Circuit found that there was no dispute that Prosper could still pursue its limitation as a defense in the state court case. The Court concluded that although dismissal was appropriate under the facts presented, its decision was expressly limited to the facts of this case and the court noted that dismissal is not always appropriate for a failure to comply with Supplemental Rule F(4).