Seventh Circuit Holds That The Combination Of A Property-Damage Counterclaim And Limitation Of Liability Is A Liability-Exempting Device Forbidden By The Jones Act
January, 2011
by Kimbley A. Kearney and Daniel R. Bryer
In Deering v. National Maintenance & Repair, Inc., ___ F.3d ___ (7th Cir. Dec. 2, 2010), the Seventh Circuit examined the extent to which a Jones Act employer can set off a property damage claim against a seaman's personal injury award when limitation of liability is also sought. The court held that such a "one-two punch" will not be permitted in the Seventh Circuit.
Facts
Vincent Deering was employed as a riverboat pilot by National Maintenance & Repair, Inc. While moving barges at National's drydock facility, Deering sustained serious injuries during an accident in which his towboat sank. Deering claimed that the accident was the result of a defective steering mechanism, and that this condition was the consequence of National's negligence. Deering filed suit against National under the Jones Act, 46 U.S.C. § 30104, and the general maritime law seeking recovery for personal injuries. National counterclaimed for the value of the tugboat, alleging that the accident was at least partially attributable to Deering's negligence. National also filed a petition under the Limitation of Liability Act, 46 U.S.C. §§ 30501 et seq., seeking to limit any potential recovery by Deering to the value of the sunken towboat. Deering moved to dismiss National's counterclaim, asserting that it violated the Jones Act's prohibition against any "devise" allowing a ship owner to exempt itself from liability created by the Act. The court granted Deering's motion and National appealed.
Analysis
The Seventh Circuit affirmed the decision of the district court, holding that National's counterclaim was properly dismissed as an impermissible devise intended to setoff recovery by Deering under the Jones Act. The court first noted that the Federal Employer's Liability Act (FELA), 45 U.S.C. § 51 et seq., which is incorporated into the Jones Act by reference, prohibits the use of "any device whatsoever" which would enable a defendant to exempt itself from liability under the statute. The court looked to the legislative history behind FELA and found that "devise" was a catch-all intended to embrace all setoffs. The court then opined that the destructive effect of allowing a setoff would be magnified in admiralty cases for three reasons. An admiralty counterclaim is always subject to a defense of comparative negligence. Taking comparative negligence into account, Deering would likely owe money to National even if National was found primarily at fault for the accident because the damages sought by National far exceeded those claimed by Deering. Deering's situation would be made even worse if National prevailed in a limitation of liability action, reducing its exposure for damages even further. Finally, the court stated that allowing a ship owner to exempt itself from liability by filing a counterclaim for property damage ran contrary to the notion that the Jones Act was specifically enacted to provide seamen with the same broad rights granted under the FELA.
The court considered but rejected the Fifth Circuit's holding in Withhart v. Otto Candies, L.L.C., 431 F.3d 840 (5th Cir. 2005), which held that a counterclaim against a seaman for property damage is not an impermissible "devise." The Seventh Circuit reasoned that Withhart was founded on a line of cases that had been decided incorrectly. It also concluded that the distinct features of maritime law, comparative negligence, limitation of liability and protection of seamen as wards of the court, were overlooked in Withhart. However, so as not to create a conflict with the Fifth Circuit or abrogate the right to recover for property damage, the court merely held that the "one-two punch" thrown by National by combining a property-damage counterclaim with a limitation of liability in order to wipe out a substantial personal injury claim under the Jones Act is a liability-exempting device forbidden by the Act.
Learning Point
Deering is a narrow holding that prohibits only combined efforts to limit liability and assert a counterclaim for property damage. It is important to note that the court expressly chose not to address whether a ship owner who does not seek to limit his liability should nevertheless be forbidden to set off damages for negligent damage to property against a Jones Act claim. The court also did not address whether this analysis applies to seamen's claims under general admiralty law, as distinct from the Jones Act. Therefore, Deering does not foreclose attempts to set off property damage claims against personal injury recovery or deliver a "one-two punch" to defend against general maritime law claims.
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