Fifth Circuit Reiterates Well-Established Rule That Ship Owner Has Burden Of Proving Validity Of A Seaman's Release

In Transocean Offshore USA Inc. v. Catrette, 2007 U.S. App. LEXIS 27870 (5th Cir.) and Steverson v. Globalsantafe Corp., 508 F.3d 300 (5th Cir.), the Fifth Circuit emphasized the elevated level of scrutiny applicable when evaluating the validity of any release or settlement involving a seaman’s rights, and indicated that a ship owner has the burden of demonstrating that a release was executed freely, without deception or coercion, and that it was made by the seaman with full understanding of his rights.

In Transocean, David Catrette suffered a work-related injury to his right shoulder while employed by Transocean as a Jones Act seaman. Transocean documented this injury in a series of reports and, upon Catrette’s request, sent him for medical treatment. In the course of this treatment, the examining doctor conducted an MRI and recommended a course of physical therapy but conveyed the test results and therapy recommendation only to Transocean’s agent. The next year, Catrette, without the benefit of this MRI or physical therapy information, signed a release of all his rights against Transocean in exchange for $4,000.00. Catrette subsequently underwent another MRI which revealed a possible tendon tear in his shoulder. In light of this discovery, Catrette filed suit against Transocean in Louisiana state court, which was subsequently dismissed. Transocean then filed an action in the Eastern District of Louisiana seeking to enforce the release and filed for partial summary judgment. In response, Catrette counterclaimed alleging that the release was invalid because he did not have a full understanding of his injury or his rights. The district court found the release invalid because Catrette “was not fully informed of the condition of or future prognosis as to his shoulder” and “was not fully advised of his legal rights at the time he executed the release.” 

In Steverson, derrickman James Steverson suffered severe injuries on a vessel owned by GlobalSantaFe and brought suit against it under the Jones Act and general maritime law for damages in excess of $4,000,000. Steverson’s attorney requested a settlement conference, which was held before a magistrate judge. After multiple offers and demands, the attorneys announced a settlement to the court. GlobalSantaFe agreed to pay $350,000, which included paying $50,000 for an annuity that would pay Steverson $150,000 at the age of 55. The magistrate judge entered an order of dismissal; however, no record of the settlement was taken by the court. Eight days later, Steverson notified his attorney that she was terminated and that he “rejected the offer of settlement.”  After GlobalSantaFe was notified that Steverson would not sign the release, it filed a motion to compel settlement. Steverson filed a reply to the motion to compel, a motion pursuant to Rule 60(b) to vacate the judgment of dismissal, and a motion for an evidentiary hearing. Steverson’s position was that he had not authorized his counsel to accept the settlement and that his attorney had led him to believe that he had 30 days to decide whether to accept the settlement offer. The magistrate judge filed a report recommending denial of the Rule 60(b) motion and enforcement of the settlement agreement, which was later adopted by the trial court. 

In both Transocean and Steverson, the Fifth Circuit held in favor of the seamen, emphasizing that the burden of proof was on the respective ship owners to show that the releases at issue were executed freely, without deception or coercion, and that they were made by the seamen with full understanding of their rights. In Transocean, the Fifth Circuit agreed with the decision of the district court, looking specifically to the lower court’s analysis of the medical and legal information provided to Catrette. As a basis for the finding that Catrette was not fully aware of his medical situation, the district court cited the facts that (1) Transocean’s agent informed Catrette that there was no tear in his shoulder; (2) Catrette was not shown the MRI Report; and (3) Catrette was not informed that he could ask a doctor of his choosing to review the findings. Similarly, in determining that Catrette was not fully advised of his legal rights, the district court noted that Catrette had no legal representation at the time he executed the release, and the attorney hired by Transocean to go over the release with Catrette “simply read the contract . . . stopping on several occasions to ask if [Catrette] understood what was being read to him.”  On this factual basis, the district court concluded Transocean fell short of meeting its burden, and held the release invalid. The Fifth Circuit affirmed because “Transocean bore the burden of proving the validity of the release, and the record reveals no clear error in the district court’s conclusion that Transocean failed to meet that burden.” 

In Steverson, the Fifth Circuit reversed the district court’s decision, holding that the lower court erred when it denied Steverson’s Rule 60(b) motion. The appellate court began its analysis by emphasizing that the “ultimate concern is whether the seaman relinquished his rights with an informed understanding and a full appreciation of the consequences when he settled his claim.”  “Any release or settlement involving [a seaman's] rights is subject to careful scrutiny.”  In determining whether Steverson had an understanding of his rights, the court noted that the order of dismissal issued by the district court was confusing and susceptible to multiple interpretations. The court also found certain aspects of the settlement negotiations troubling including (1) the fact that Steverson was in a different room during settlement negotiations; (2) the court did not question Steverson as to whether he agreed to the amount of the settlement; and (3) no record was taken by the court of the settlement. On this basis, the court held that there was no evidence “indicating that [Steverson] had an informed understanding and a full appreciation of the consequences when he settled his claim.”  The court concluded that under these circumstances, the district court abused its discretion in failing to conduct an evidentiary hearing on Steverson's Rule 60(b) motion. 

The traditional means of protecting against the set-aside of a seaman’s release is still the best:  make a record of the terms of the settlement before the presiding court and obtain court approval of those terms with the seaman in attendance to communicate awareness of salient facts and agreement with terms.  If no lawsuit has been filed, and the case is important enough, the matter can be brought before a federal court in a declaratory judgment proceeding.