Probo II London v. Isla Santay MV

United States Court of Appeals,
Fifth Circuit.

No. 95-30731.

PROBO II LONDON; Baro Shipping, Ltd., Hong Kong, Plaintiffs-Appellants; Cross-Appellees,

v.

ISLA SANTAY MV, her engines, tackle, apparel, etc., in rem; Transportes Navieros
Ecuatorianos; Defendants-Appellees; Cross-Appellants,

The Panama Canal Commission, in personam, Defendant-Appellee,

Probo Baro MV, her engines, tackle, apparel, etc., in rem; Probo Two Ltd.; Torvald Kvaveness
& CO A/S, Defendants.

Aug. 27, 1996.

Appeals from the United States District Court for the Eastern District of Louisiana.

Before REAVLEY, GARWOOD and JOLLY, Circuit Judges.

GARWOOD, Circuit Judge:

This appeal presents issues relating to the award of prejudgment interest in a maritime

collision case.

Facts and Proceedings Below

The underlying controversy arises out of a maritime collision on the Pacific approach to the

Panama Canal between a tanker, t he PROBO BARO, and a general cargo vessel, the M/V ISLA

SANTAY on March 10, 1989. At the time of the collision, the PROBO BARO was under the control

of a compulsory pilot of the Panama Canal Commission (Commission). Both vessels sustained

damage. Following the collision, both vessels underwent temporary repairs at a shipyard in Panama.

The PROBO BARO received additional temporary repairs in Baltimore before proceeding to Spain,

where permanent repairs were made. Following the temporary repairs in Panama, the ISLA

SANTAY elected to delay further repairs until her next regularly scheduled dry-docking in 1990.

As the Commission was to be a party to the litigation, the claims of both vessel interests were

required to undergo the Commission's administrative claims procedure pursuant to 22 U.S.C. §§ 3772

and 3776 before suit could be commenced. The damages to the PROBO BARO were submitted to

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the Commission on July 10, 1990, although the Commission required additional information, all of

which was not presented until June 12, 1991. The damages claimed to the ISLA SANTAY were

submitted to the Commission on March 8, 1991. The Commission issued its final determination with

respect to the PROBO BARO claim on March 3, 1992, and as to the ISLA SANTAY claim on March

9, 1992.

On May 29, 1992, appellants Probo II, London and Baro Shipping Limited, Hong Kong

(collectively, BARO interests) filed suit against the M/V ISLA SANTAY and her owners,

Transportes Navieros Ecuatorianos, (collectively, SANTAY interests) and the Commission in the

United States District Court for the Eastern District of Louisiana. The liability issue came to trial by

consent of all parties before a magistrate judge on December 19, 1994. The m agistrate judge

apportioned 70% of the fault to the ISLA SANTAY, 20% to the Commission, and the remaining

10% to the PROBO BARO.

O set for trial, the parties entered into a stipulation accepting the magistrate judge's

apportionment of fault. In addition, the parties stipulated to damages of $1,252,000 to the PROBO

BARO and $669,000 to the ISLA SANTAY. The parties were unable to come to terms on the

question of prejudgment interest which was left for resolution by the magistrate judge.

The magistrate judge entertained additional briefing on the issue of prejudgment interest and

costs before issuing a minute entry on February 23, 1995, which provided that the SANTAY interests

should pay prejudgment interest from the date of judicial demand, including the Commission's share

of the interest.1 However, the magistrate judge declined to award prejudgment interest from the date

of the casualty because it found that the BARO interests had improperly delayed in prosecuting their

claim, there was a good faith liability disput e in a case of mutual fault, and that equitable

considerations surrounding the payment of the Commission's share of the interest mitigated in favor

1
Congress has not waived the Commission's sovereign immunity with respect to interest.
McGehee v. Panama Canal Commission, 872 F.2d 1213 (5th Cir.1989).

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of such a result.2

Motions for reconsideration were filed on behalf of both vessel interests in March and April

1995. By order entered July 6, 1995, the magistrate judge denied the motions for reconsideration and

entered judgment awarding costs and prejudgment interest from the date of judicial demand to the

BARO interests.3

The BARO interests now appeal the magistrate judge's denial of prejudgment interest from

the date of the collision. The SANTAY interests have brought a cross-appeal urging that the district

court abused its discretion in awarding any prejudgment interest to the BARO interests, and that the

district court erred as a matter of law in requiring the SANTAY interests to pay interest on the

portion of damages attributable to the Commission.

Discussion

I. Denial of Prejudgment Interest

In reviewing awards of prejudgment interest, the factual findings regarding whether "peculiar

circumstances" exist are reviewable for clear error, while the decision as to whether prejudgment

interest should be awarded once such circumstances are found is reviewed for abuse of discretion.

Corpus Christi Oil & Gas v. Zapata Gulf Marine, 71 F.3d 198, 204 (5th Cir.1995).

The Supreme Court recently addressed the award of prejudgment interest in admiralty in City

of Milwaukee v. Cement Div., Nat. Gypsum Co., --- U.S. ----, ----, 115 S.Ct. 2091, 2095, 132

2
In this Circuit, the general rule in admiralty cases is that prejudgment interest is to be awarded
from the date of loss. Reeled Tubing, Inc. v. M/V CHAD G, 794 F.2d 1026, 1028 (5th Cir.1986);
King Fisher Marine Serv., Inc. v. NP Sunbonnet, 724 F.2d 1181, 1187 (5th Cir.1984).
3
The BARO interests were awarded judgment against the Commission in accordance with its
percentage of fault, but without prejudgment interest. After netting of damages and allocation in
accordance with proportionate fault, the BARO interests were also awarded judgment for an
additional amount against the SANTAY interests. Separate principal amounts were awarded
against the Commission and against the SANTAY interests, and the judgment was entirely
several, and not joint or joint and several. Prejudgment interest was awarded on the whole of the
judgment (the principal amounts awarded against the Commission and those awarded against the
SANTAY interests) in favor of the BARO interests and against the SANTAY interests. The
Commission does not appeal. No party on appeal questions any part of the judgment except that
relating to prejudgment interest.

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L.Ed.2d 148 (1995), noting that it is "a general rule that prejudgment interest should be awarded in

maritime collision cases, subject to a limited exception for "peculiar' or "exceptional' circumstances."

The Court further explained:

"The essential rationale for awarding prejudgment interest is to ensure that an injured party
is fully compensated for its loss. Full compensation has long been recognized as a basic
principle of admiralty law, where "[r]estitutio ad integrum is the leading maxim applied by
admiralty courts to ascertain damages resulting from a collision.' By compensating "for the
loss of use of money due as damages from the time the claim accrues until judgment is
entered,' an award of prejudgment interest helps achieve the goal of restoring a party to the
condition it enjoyed before the injury occurred." Id. at ---- - ----, 115 S.Ct. at 2095-96
(footnote and citations omitted).

Yet the Court cautioned that "[d]espite admiralty's traditional hospitality to prejudgment interest,

however, such an award has never been automatic." Id. at ----, 115 S.Ct. at 2096. While declining

to elaborate an exhaustive list of those circumstances that would justify the denial of prejudgment

interest, the Court noted that undue delay by the plaintiff in pursuing the suit would qualify, while the

existence of a good faith dispute as to liability or the existence of mutual fault would not. Id. at ---- -

----, 115 S.Ct. at 2096-97.

In the present case, the magistrate judge, relying on this Court's opinion in Reeled Tubing,

Inc. v. M/V CHAD G, 794 F.2d 1026 (5th Cir.1986), cited several factors in support of the decision

to award the BARO interests prejudgment interest only from the date of judicial demand rather than

from the date of the collision. Among the factors cited by the magistrate judge in support of that

decision was the existence of a good faith dispute in a mutual fault setting. At the time of the

magistrate judge's minute entry and of the motions for reconsideration directed to it, these factors

were proper considerations in denying prejudgment interest under the law of this Circuit. See Reeled

Tubing, 794 F.2d at 1028; Inland Oil & Transport Co. v. Ark-White Towing Co., 696 F.2d 321, 327-

28 (5th Cir.1983). However, the Supreme Court's June 12, 1995, decision in City of Milwaukee,

issued shortly prior to the final judgment in this case but not cited by the magistrate judge or any of

the parties below, teaches that neither the existence of a good faith dispute as to liability nor the

existence of mutual fault constitutes "peculiar" circumstances so as to warrant the denial of

prejudgment interest. City of Milwaukee, --- U.S. at ----, 115 S.Ct. at 2097; see also Koch Refining

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Co. v. M/V Jennifer L. Boudreaux, 85 F.3d 1178, 1183 (5th Cir.1996) (noting Supreme Court's

rejection of this rationale). As the magistrate judge's decision to deny prejudgment interest from the

date of the collision rests in part on considerations foreclosed under the current state of the law, we

must reverse the judgment and remand this matter for reconsideration in light of City of Milwaukee.

See Price v. Denison Ind. Sch. Dist., 694 F.2d 334, 367-68 (5th Cir.1982) (remand required where

erroneous view of the law appears to have materially influenced exercise of discretion).

II. Liability of SANTAY for Interest on Damages Attributable to Commission

The SANTAY interests have lodged a cross-appeal in which they advance two arguments as

to why they should not be liable for prejudgment interest on that portion of the damages attributable

to the Commission: (1) prejudgment interest on those damages is not an element of damages to

which the BARO interests are entitled because the Commission's sovereign immunity has not been

waived as to prejudgment interest; and (2) the fault attributable to the Commission pilot at the helm

of the PROBO BARO is more properly attributed to the PROBO interests than the SANTAY

interests under principles of maritime law and equity.

The SANTAY interests, relying on authority for the proposition that interest is a separate

element of damages for purposes of the sovereign immunity analysis,4 argue that therefore

prejudgment interest is not an element of damages to which the BARO interests are entitled as

Congress has not waived the Commission's immunity for such interest.

We believe that this argument elides an essential distinction between the elements of the

plaintiff's damages and the sovereign's immunity from liability. While the sovereign may not be liable

for such interest absent a waiver of sovereign immunity, the interest remains an element of the

plaintiff's damages necessary to make the plaintiff whole. See City of Milwaukee, --- U.S. at ----, 115

S.Ct. at 2095 ("The essential rationale for awarding prejudgment interest is to ensure that an injured

party is fully compensated for its loss."). The argument advanced by the SANTAY interests requires

4
Library of Congress v. Shaw, 478 U.S. 310, 106 S.Ct. 2957, 92 L.Ed.2d 250 (1986); WJM,
Inc. v. Massachusetts Dept. of Public Welfare, 840 F.2d 996, 1006 (1st Cir.1988); McKenzie v.
Kennickell, 669 F.Supp. 529, 535 (D.D.C.1987).

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the logical leap from the proposition that the sovereign may not be held liable for prejudgment interest

to the proposition that no party, even a joint tortfeasor, can be liable for such interest, an argument

rejected by this Court in Transorient Navigators Co., S.A. v. M/S SOUTHWIND, 788 F.2d 288 (5th

Cir.1986).

In Transorient Navigators, a maritime collision case, 80% of the fault was apportioned to the

pilot of the SOUTHWIND and 20% to the United States Army Corps of Engineers, while no fault

was assessed against Transorient's vessel, the ASTROS. Although the United St ates' liability for

interest was statutorily limited by the Suits in Admiralty Act, we held that the district court had erred

in holding that Transorient could not recover interest on the full amount of damages from the

SOUTHWIND as a joint tortfeasor.

The SANTAY interests attempt to distinguish Transorient Navigators in certain respects

which we find to be lacking in merit. It is first argued that Transorient Navigators is distinguishable

because the Suits in Admiralty Act specifically allowed the award of interest against the United

States, thereby rendering interest an element of damages, while there is no such waiver of immunity

in the present case. The flaw in this argument lies in the fact that in Transorient Navigators we held

that while interest recoverable from the United States was statutorily limited to 4% annual ly, the

balance of interest owing on the full amount of damages was recoverable from the SOUTHWIND.

Under the argument advanced by the SANTAY interests, the statutory bar against recovering the

remaining interest from the United States would mean that such interest was simply not an element

of damages, and therefore not recoverable from any part Navigators is that no fault was assessed

against Transorient while the magistrate judge found the PROBO BARO to be 10% at fault in the

present case. Thus it is argued that Transorient Navigators stands only for the proposition that an

innocent party is entitled to full recovery. The Supreme Court rejected just such a rationale in City

of Milwaukee in response to Milwaukee's argument that it was inequitable to award a large sum in

prejudgment interest against the city when the owner o f the vessel had been adjudged 96%

responsible for the damage noting:

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 "[A]ny unfairness is illusory, because the relative fault of the parties has already been taken
into consideration in calculating the amount of the loss for which the City is responsible....
Thus, in this case, before prejudgment interest even entered the picture, the total amount of
respondents' recovery had already been reduced by two-thirds because of National Gypsum's
own negligence.... The Cit y is merely required to compensate the owner for the loss for
which the City is responsible." City of Milwaukee, --- U.S. at ----, 115 S.Ct. at 2097.

Therefore, the fact that the PROBO BARO was partially at fault in the present case is by itself of no

consequence to the award of prejudgment interest.

However, another principle of maritime law relied upon in Transorient Navigators provides

the relief which the SANTAY interests seek under their second ground of attack on the award of

prejudgment interest as to the damages assessed against the Commission. In Transorient Navigators,

we endorsed the district court's holding that the negligence attributable to the compulsory pilot at the

helm of the vessel at the time of the collision was pro perly imputed to the vessel. Transorient

Navigators, 788 F.2d at 291; see also Avondale Ind. v. Intern. Marine Carriers, 15 F.3d 489, 492-

93 (5th Cir.1994). The lineage of this rule in American jurisprudence, often referred to as the

"compulsory pilot defense," can be traced back to decisions such as The CHINA, 74 U.S. (7 Wall)

53, 64, 19 L.Ed. 67 (1868) and Homer Ramsdell Transp. Co. v. La Compagnie Generale

Transatlantique, 182 U.S. 406, 21 S.Ct. 831, 45 L.Ed. 1155 (1901). The rule may be generally

stated as being that the vessel itself is liable in rem for a maritime collision caused by the fault of its

compulsory pilot; if the pilot alone was at fault, the shipowner will not be liable in personam;

however, if the negligence of the master or crew contributed to the collision, then in addition to the

vessel's liability in rem the shipowner also will face in personam liability.5

Here, the collision was solely attributable to the two vessels involved, the PROBO BARO

and the ISLA SANTAY, and as between t hem the PROBO BARO was 30%, not 10%, at fault.

Given that the 20% of the fault apportioned to the Commission is properly imputable to the PROBO

5
See Jure v. United Fruit Co., 6 F.2d 6, 7 (5th Cir.1925); see generally 2 Benedict on
Admiralty § 46 (7th ed. rev. 1995); David J. Bederman, Compulsory Pilotage, Public Policy,
and the Early Private International Law of Torts, 64 Tul.L.Rev. 1033, 1041 (1990); Dana M.
Shelton, Note, The Fifth Circuit Contracts the Compulsory Pilot Defense and Expands the
Vessel Master's Duty to Monitor Compulsory Pilots: Avondale Industries v. International
Marine Carriers, 19 Tul.Mar.L.J. 485 (1995).

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BARO, the SANTAY interests ought not in equity be held accountable for interest on that portion

of the damages apportioned to the Commission.6 See Reeled Tubing, 794 F.2d at 1026 (peculiar

circumstances may be found "where some equitable doctrine cautions against the award"); Pickle

v. International Oilfield Divers, Inc., 791 F.2d 1237, 1241 (5th Cir.1986) (same), cert. denied, 479

U.S. 1059, 107 S.Ct. 939, 93 L.Ed.2d 989 (1987).

Conclusion

To summarize, because the court below acted upon an improper theory of law in relying on

the existence of a good faith dispute over liability in a mutual fault setting as one of its grounds for

denying prejudgment interest prior to the date of judicial demand, we must reverse the judgment and

remand the cause for reconsideration in light of the Supreme Court's decision in City of Milwaukee.

In addition, we have determined that no prejudgment interest on the portion of damages attributable

to the Commission ought in equity to be borne by the SANTAY interests. Therefore, the equitable

concerns relating to the SANTAY interests' liability for the Commission's portion of the interest

which the magistrate judge cited in support of the decision to deny prejudgment interest from the date

of the collision to the date of judicial demand are no longer present. Upon remand, undue delay on

the part of the BARO interests will be the only remaining factor cited in the original judgment for

denying prejudgment interest from the date of the collision to the date of judicial demand.

Accordingly, while we express no opinion on the resolution of that question, the court below should

conduct a thorough review of the record upon remand to determine whether there is sufficient

evidence of undue delay chargeable to the BARO interests to support the denial of prejudgment

interest from the date of the collision on that ground.7 However, in no event shall any prejudgment

6
The Commission was not at fault other than by virtue of the fault of its pilot while piloting the
PROBO BARO. The collision was solely attributable to the two vessels involved.
7
We affirm the magistrate judge's rejection of the claim that the SANTAY interests are
contractually bound, by certain matters transpiring during settlement discussions, to pay
prejudgment interest.

We note that the magistrate judge's determination to deny prejudgment interest
prior to judicial demand did not rest to any extent on a determination that—nor have the

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interest be awarded against the SANTAY interests in respect to the portion of principal damages

assessed against the Commission.

For the foregoing reasons, the judgment of the magistrate judge is

REVERSED AND REMANDED.

SANTAY interests asserted here or below that—the requirement for administrative
exhaustion before the Commission (as distinguished from the BARO interests' assertedly
undue delay in instituting and prosecuting such administrative proceedings) was per se a
"peculiar" or "exceptional" circumstance justifying the denial or limitation of prejudgment
interest. We hence do not address that.

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