Case: 09-40942 Document: 00511255839 Page: 1 Date Filed: 10/06/2010
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
October 6, 2010
No. 09-40942 Lyle W. Cayce
Clerk
GULF COAST SHELL AND AGGREGATE LP; RICHMOND MATERIAL
COMPANY,
Plaintiffs - Appellees
v.
CHARLES T. NEWLIN, Individually,
Defendant - Appellant - Appellee
and
QUIMICOS AMIEX, S A DE C V, appearing solely in its capacity as a person
who asserts a right of ownership interest in the Dredge La Concha,
Claimant - Appellant
v.
INTERNATIONAL FIDELITY INSURANCE CO.,
Intervenor - Appellant
Appeals from the United States District Court
for the Southern District of Texas
Before JOLLY, DeMOSS, and DENNIS, Circuit Judges.
E. GRADY JOLLY, Circuit Judge:
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Who has the best claim to La Concha? Well, we do not know the answer,
but we do know that the answer cannot be provided by the courts of admiralty.
The claims presented in this appeal arise from a failed oyster-dredging
venture between appellee Gulf Coast Shell and Aggregate LP (“Gulf Coast”) and
appellant Charles Newlin (“Newlin”). Gulf Coast sued the oyster dredge La
Concha in rem, under Admiralty Rule D, for possession and to try title to the
dredge. It sued Newlin in personam, for breach of contract, breach of fiduciary
duty, and wrongful conversion. The district court issued judgment in favor of
Gulf Coast. Newlin challenges the existence of admiralty jurisdiction and the
merits of the district court’s judgment. We hold that the district court did not
have admiralty jurisdiction over this suit because Gulf Coast has not asserted
a legal claim to the dredge; because the contract between Gulf Coast and Newlin
is not a maritime contract; and because the torts alleged by Gulf Coast are not
maritime torts.1 We therefore vacate the judgment of the district court and
remand the case to the district court for entry of an order dismissing Gulf
Coast’s claims for lack of jurisdiction.
I.
Newlin, along with Roy Beken (“Beken”) and Dean Koy (“Koy”), intended
to begin an oyster shell dredging venture in Mexico and to distribute the shell
aggregate in the United States. Newlin formed a Mexican corporation, Grupo
Triad Meridian (“Grupo”), for the purpose of locating oyster shell deposits off the
coast of Mexico and obtaining a concession from the Mexican government to
dredge the deposits. Koy and Beken both purchased shares in Grupo from
Newlin. Later, Koy and Beken formed a limited partnership, Gulf Coast, for the
purposes of distributing the oyster shells from Grupo’s dredging efforts for sale
in the United States, and providing funds for a dredge. Koy and Richmond
1
For purposes of simplification, we refer throughout this opinion to the Defendant-
Appellant as “Newlin” and to the Plaintiffs-Appellees collectively as “Gulf Coast.”
2
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Materials Company (“Richmond”), which Beken controls, each have a 49%
limited partnership interest in Gulf Coast. In March 2005, Beken purchased an
additional interest in Grupo from Newlin.2 At this point, Beken and Newlin
each owned 24.75% of Grupo, and Koy owned 44.5%.
Newlin, Beken, and Koy agreed that Gulf Coast would be the exclusive
U.S. distributor for the oyster shells. When a suitable dredge (La Concha) was
located, Gulf Coast paid the purchase price of $300,000. However, the seller
prohibited the sale of the dredge to a U.S. entity, so the parties agreed that the
purchase agreement would list Industrias Pasmoso S.A. de C.V. (“Industrias”),
a Mexican entity controlled by Newlin, as the buyer. Although they dispute the
reasons for doing so, the parties agree that they intended to leave title to the
dredge with Industrias for the time being, and to transfer the title to Grupo after
it had been refurbished and appraised at a higher value.
Various entities, including Gulf Coast, paid for repairs and refurbishment
of the dredge.3 Before the refurbishment work was completed, Newlin
transferred title to the dredge to Quimicos Amibex S.A. de C.V. (“Quimicos”), a
Mexican entity owned primarily by Newlin, and then paid for further repairs.
Newlin contends that he performed the transfer because Beken and Koy had
stopped paying for repairs to the dredge.
Beken, through Richmond and derivatively on behalf of Gulf Coast, filed
the instant suit, naming the dredge in rem and Newlin as defendants. Appellant
Quimicos filed a claim asserting an ownership interest in the dredge. A
magistrate judge signed an order for the arrest of the dredge. The court later
entered an order requiring $750,000 security to release the dredge. Quimicos
2
For this interest Beken paid $500,000 cash and gave a promissory note for $2 million.
Beken never paid the promissory note, which was the subject of a Texas state court suit filed
by Newlin against Beken prior to this lawsuit.
3
The district court found that these payments were all made on Gulf Coast’s behalf.
3
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filed a bond for the vessel’s release.
The district court issued an opinion on August 3, 2009, concluding that
Gulf Coast had been deprived of its right to possession of the dredge. Based on
the amounts contributed by Gulf Coast and Newlin to the refurbishing and
towing of the dredge, and on the purchase price paid by Gulf Coast, the court
made a pro rata apportionment of the $750,000 bond (which was substituting for
the dredge as the res). The court concluded that $605,550 of the dredge’s value
should go to Richmond, and the remainder to the defendants.
Newlin moved to amend the judgment or for a new trial, asserting that the
district court lacked admiralty jurisdiction and challenging the merits. The
motion was denied in relevant part and the court issued an amended judgment
on August 18.4 Newlin again moved to alter or amend or for a new trial, which
the district court again denied in relevant part. Newlin timely appealed.
II.
The threshold question before us is whether the district court had
admiralty jurisdiction over Gulf Coast’s claim for possession of the dredge.5
Federal courts have original jurisdiction over admiralty or maritime civil suits.
28 U.S.C. § 1333(1). This court reviews questions of subject matter jurisdiction
de novo. In re Bissonnet Investments LLC, 320 F.3d 520, 522 (5th Cir. 2003).
There are two possible bases for admiralty jurisdiction in this case: first,
if this is a suit to try legal title to, or repossess, a vessel under Rule D of the
Supplemental Rules for Certain Admiralty and Maritime Claims (“Rule D”);
second, if the contract and tort claims are properly characterized as “maritime”
4
The motion was granted for the limited purpose of substituting Gulf Coast for
Richmond as the judgment’s recipient (because Richmond had brought the suit derivatively
on Gulf Coast’s behalf).
5
Admiralty jurisdiction is the only possible basis for jurisdiction in the district court;
the parties do not assert diversity.
4
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in nature. For the reasons that follow, we conclude that Gulf Coast has an
equitable rather than legal claim to title and possession, rendering its Rule D
claims unamenable to admiralty jurisdiction. We further conclude that the
contract and tort claims asserted by Gulf Coast are not maritime in nature. We
therefore hold that admiralty jurisdiction does not extend to this controversy.
A.
We first address whether Gulf Coast’s Rule D action is based on a legal
claim to the dredge. “[A]dmiralty has jurisdiction in a possessory suit by the
legal owner of a vessel who has been wrongfully deprived of possession.”
Gallagher v. Unenrolled Motor Vessel River Queen, 475 F.2d 117, 119 (5th Cir.
1973) (internal citations omitted). A petitory action (to try title) under Rule D
“requires [a] plaintiff to assert a legal title to the vessel; mere assertion of an
equitable interest is insufficient.” Silver v. Sloop Silver Cloud, 259 F. Supp. 187,
191 (S.D.N.Y. 1966). Similarly, a party seeking possession of a vessel under
Rule D “must have legal title or a legal claim to possession.” Cary Marine, Inc.
v. M/V Papillon, 701 F. Supp. 604, 606 (N.D. Ohio 1988), aff’d, 872 F.2d 741 (6th
Cir. 1989). A Rule D claim asserting only equitable interests, with no separate
basis for admiralty jurisdiction, is not cognizable in admiralty. See Privilege
Yachting, Inc. v. Teed, 849 F. Supp. 298, 301 (D. Del. 1994); United States v.
Cornell Steamboat Co., 202 U.S. 184, 194 (1906).
Gulf Coast offers no support as to why its claim is legal rather than
equitable. Gulf Coast acknowledges that it does not have title to the dredge, and
the contract on which it is suing does not vest title in Gulf Coast. Quite the
contrary: Gulf Coast admits that title was intended to vest first in Industrias
and then in Grupo. As such, we hold that Gulf Coast did not have legal title or
a legal claim to ownership of the dredge. Because the relief sought by Gulf Coast
is merely equitable in nature, we find no basis for admiralty jurisdiction over
Gulf Coast’s Rule D claims for possession and to try title to the dredge. See The
5
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Captain Johnson, 64 F. Supp. 559, 560 (D.N.J. 1946) (finding no admiralty
jurisdiction where the plaintiffs “admit they, themselves, however inadvertently
and by fraud, placed the legal title to the boat in question” in a third party).
B.
We now turn to whether Gulf Coast’s contract and tort claims present a
basis for admiralty jurisdiction. Courts of admiralty have jurisdiction over a
contractual dispute if the contract at issue is a maritime contract. Kuehne &
Nagel v. Geosource, Inc., 874 F.2d 283, 288, 290 (5th Cir. 1989). A maritime
contract is one “relating to a ship in its use as such, or to commerce or navigation
on navigable waters, or to transportation by sea or to maritime employment.”
J.A.R., Inc. v. M/V Lady Lucille, 963 F.2d 96, 98 (5th Cir. 1992) (emphasis
added). However, “[t]he mere fact that a ship is involved will not bring the cause
within the jurisdiction of the admiralty court.” Richard Bertram & Co. v. The
Yacht Wanda, 447 F.2d 966, 967–68 (5th Cir. 1971). For example, contracts for
the construction or sale of a vessel are not maritime contracts. Lady Lucille, 963
F.2d at 98. To determine whether a contract is maritime, we look to whether the
“nature of the transaction was maritime” and “whether the services performed
under the contract are maritime in nature.” Exxon Corp. v. Central Gulf Lines,
Inc., 500 U.S. 603, 611, 612 (1991).
Here we have no written contract—only an oral agreement to transfer title
of a vessel to a third party. We think it clear that such an agreement does not
relate in any meaningful way to commerce on navigable waters or the use of the
oyster dredge as a dredge. We are unable to conclude that transfer of title was
merely incidental to a broader maritime contract between Gulf Coast and
Newlin because this dispute is based on a discrete oral agreement (to transfer
title) that is the very basis for Gulf Coast’s breach of contract claim. As such, the
dispute over this contract is not cognizable in admiralty.
6
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We next review whether Gulf Coast’s tort claims for wrongful conversion
and breach of fiduciary duty afford a basis for admiralty jurisdiction. A tort is
not cognizable in admiralty unless (1) it occurred on navigable water, or an
injury suffered on land was caused by a vessel on water (the location test); and
(2) “the incident has a potentially disruptive impact on maritime commerce,” or
“the general character of the activity giving rise to the incident shows a
substantial relationship to traditional maritime activity” (the connection test).
Jerome B. Grubart, Inc. v. Great Lakes Dredge & Dock Co., 513 U.S. 527, 534
(1995) (internal citations omitted). Gulf Coast’s claims fail both tests. The torts
of wrongful conversion and breach of fiduciary duty stem directly from Newlin’s
alleged breach of the parties’ contract regarding transfer of title. It is
undisputed that the title transfer did not occur on navigable water. Moreover,
we have already held that a transfer of title to Quimicos instead of Grupo—“the
activity giving rise to the incident”—does not bear a “substantial relationship to
maritime activity.” Id. It relates merely to possession and ownership of the
dredge, not to the vessel in its use as such. Neither the contract nor its breach
are maritime in nature, and any torts arising therefrom are similarly non-
maritime. A court of admiralty thus has no jurisdiction over this lawsuit.
III.
Admiralty jurisdiction extends to suits to try title or for possession of a
vessel under Rule D where the plaintiff asserts legal title or a legal claim to
possession. Contract and tort claims are cognizable in admiralty where those
claims are maritime in nature. We have held that Gulf Coast’s claims fail to
satisfy these jurisdictional thresholds. The interest of Gulf Coast in possession
or partition of the dredge is merely equitable, and is thus an insufficient basis
for admiralty jurisdiction. Furthermore, the contract that Gulf Coast accuses
Newlin of breaching is not a “maritime” contract; it relates to transfer of title,
not to a vessel in its use as such. Similarly, the tort claims raised by Gulf Coast
7
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do not relate to maritime activity.
For the foregoing reasons, we hold that the district court erred in finding
that it had admiralty jurisdiction over this case and in rendering a judgment on
the merits.6 We therefore VACATE the district court’s judgment and REMAND
for entry of an order of dismissal.
VACATED and REMANDED.7
6
In the light of this conclusion, we need not address the district court’s judgment on
the merits or any other claims raised in this appeal.
7
Judge Dennis concurs in judgment only.
8