Property Damage Counterclaim Forbidden By Jones Act

The Seventh Circuit Court of Appeals recently ruled on whether a property damage counterclaim in a Jones Act personal injury suit was an impermissible setoff prohibited by the Act.  Section 5 of the Federal Employers’ Liability Act, part of the liability scheme incorporated into the Jones Act, prohibits “any contract, rule, regulation, or device whatsoever, the purpose or intent of which shall be to enable any common carrier to exempt itself from any liability.”  Judge Posner, writing for the court, held that the property damage counterclaim, which had the potential to not only wipe out the plaintiff’s personal injury claim but also to leave the plaintiff owing the vessel owner money damages, was a “device” within the meaning of Section 5 intended to set off the defendants Jones Act liability. Rather than hold that such a counterclaim would always be barred, the court limited its holding to prevent the “one-two punch” sought by the defendant.  Here, defendant sought to recover property damages for its sunken vessel and limit its liability in a limitation action.  Because the vessel was worth a fraction of its price, namely the salvage value of the sunken vessel, the combination of the small limitation fund with the plaintiff’s potential property damage liability to the defendant could setoff any damages recoverable by the plaintiff and actually leave him owing money to the defendant.  Accordingly, the court held that the counterclaim was a liability-exempting device forbidden by the Jones Act.  The court left for another day, “which may be long in coming,” whether such a counterclaim would be barred if the defendant did not seek to limit its liability.

Deering v. National Maintenance & Repair, Inc., — F.3d —, 2010 WL 4907945 (7th Cir. 2010).

Note: This entry was prepared by Trevor Cutaiar, an associate at Mouledoux, Bland, Legrand & Brackett.