Northern District of Illinois Rules that Raising Limitation of Liability as an Affirmative Defense in State Court is Insufficient to Confer Jurisdiction on a Federal Court
September, 2003
Northern District Of Illinois Rules That Raising Limitation Of Liability As An Affirmative Defense In State Court Is Insufficient To Confer Jurisdiction On A Federal Court
by Kimbley A. Kearney
kkearney@clausen.com
Timothy G. Savage
tsavage@clausen.com
The Northern District of Illinois has held in Holly Marine Towing, Inc., Limitation Proceedings, 2003 AMC 1672 (N.D. Ill. 2003), that asserting the Limitation of Liability Act (the “Act”), 46 U.S.C. App. §183, as an affirmative defense in a state court action is insufficient to give a federal court jurisdiction over the matter.
Facts
One worker died and two more were injured when a mechanical platform lift fell off a barge. After the plaintiffs filed claims in Illinois state court, the barge owner filed a limitation of liability action in federal court; the plaintiffs also filed federal actions.
When the barge owner counterclaimed in federal court against the bareboat charterer and the lift manufacturer for contribution and indemnity, the chaterer raised limitation of liability as an affirmative defense to the indemnity claim. The charterer also asserted limitation of liability as an affirmative defense to the plaintiffs’ state court claims.
The barge owner then sought court approval for a settlement with the plaintiffs. The charterer objected, arguing that the settlement would deplete the limitation fund the charterer had sought to invoke through the affirmative defenses it raised to the federal and state court claims.
Analysis
The court approved the settlement, holding that because the Act does not apply to claims for contractual indemnity, the charterer’s affirmative defense to the barge owner’s indemnity claim was ineffective. The court also held that raising limitation of liability as an affirmative defense to a state court claim was insufficient to confer jurisdiction on the federal court.
The court gave careful consideration to the “knotty” issue of whether a defendant can successfully assert federal jurisdiction over a limitation question merely by pleading it as an affirmative defense in a state court proceeding. The court recognized that, although a defendant may plead §183 of the Act as a defense in any court, including a state court, once limitation is contested, as it was in this case, only a federal court may settle the issue.
If the charterer had pleaded §183 as an affirmative defense to the plaintiffs’ claims in federal court, no other action would have been required to confer jurisdiction on the court. But because the charterer pleaded §183 as a defense to a state court claim, it was incumbent upon the charterer to file a §185 petition in federal court to confer jurisdiction on the federal court.
In considering the charterer’s attempt to “piggyback” its limitation claim on the barge owner’s §185 petition, the court noted that although it had the authority to address all aspects of the underlying litigation when reviewing the barge owner’s §185 petition, it was not required to do so. In light of the fact that the charterer had done “none of the things required as prerequisites to the initiation” of a limitation action, the court would not permit the charterer to “belatedly initiate a [second limitation action] of its own without having attempted to comply with the legal requirements for doing so.”
Learning Point: In order to preserve all of its rights to seek a limitation of liability under the Limitation of Liability Act, a petitioner should file a concurrent §185 petition in federal court so that the federal court will have jurisdiction over the limitation question and the petitioner can be sure that all of its rights to seek limitation of liability are preserved. ?
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