American Milling Co. v. Brennan Marine, Inc.

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 08-3915
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American Milling Company; UN *
Limited; HB Marine, Inc., corporations; *
American Milling LP, a limited *
partnership, For Exoneration From, or *
Limitation of, liability, *
*
Plaintiffs/Appellants, * Appeal from the United States
* District Court for the
* Eastern District of Missouri.
v. *
*
Brennan Marine, Incorporated; *
Pinnacle Barge Co., LLP; Pinnacle *
Transportation, Inc.; Trustee of the *
Distribution Trust, formerly known as *
President Casino, Inc., *
*
Claimants/Appellees. *
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Submitted: January 14, 2010
Filed: October 22, 2010
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Before MELLOY, SMITH, and COLLOTON, Circuit Judges.
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COLLOTON, Circuit Judge.

This appeal is one of several stemming from an allision between one or more
barges and a casino boat on the Mississippi River. The barges broke loose from a
towboat belonging to American Milling Co., UN Ltd., HB Marine, Inc., and American
Milling LP (collectively, “American Milling”) and damaged The Admiral, a moored
casino entertainment ship owned by President Casino, Inc. (“President Casino”).

This court previously addressed the parties’ liability from the incident,
American Milling’s right to limit its liability, and the value of the limitation fund. In
re American Milling Co., 409 F.3d 1005 (8th Cir. 2005). This appeal involves an
interpretation of Supplemental Rule for Admiralty or Maritime Claims F(1) (“Rule
F(1)”). This rule outlines the procedure for posting security on a limitation fund and
specifies the interest to be paid. Pursuant to Rule F(1), the district court1 ordered
American Milling to pay interest on its security at a rate of six percent compounded
annually, and denied American Milling’s motion to deposit the cash value of the
security into the court registry at a later stage of the proceedings. We affirm.

I.

On April 4, 1998, the towboat M/V Anne Holly was traveling upstream on the
Mississippi River when its tow of barges allided with the Eads Bridge near St. Louis,
Missouri, and broke apart. One or more of the loosed barges allided with and
damaged The Admiral, which was moored at the Missouri shore just downstream from
the Eads Bridge. Two days later, American Milling filed a complaint in the district
court seeking to limit its liability to the value of its vessel, pursuant to the Limitation
of Shipowners’ Liability Act of 1851 (the “Limitation Act”), 46 U.S.C. app. § 183
(current version at 46 U.S.C. § 30505). In accordance with Rule F(1), American
Milling also submitted security to establish a limitation fund in the amount of $1.25
million, which the company claimed to be the fair market value of the M/V Anne
Holly. President Casino, along with the barge claimants Brennan Marine, Inc.,

1
The Honorable Stephen N. Limbaugh, Sr., United States District Judge for the
Eastern District of Missouri, now retired.

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Pinnacle Barge Co., and Pinnacle Transportation, Inc., filed claims against American
Milling to recover damages.

After American Milling sold the vessel for $2.2 million ten months after the
allision, the district court ruled in January 2001 that the fair market value of the M/V
Anne Holly, and hence the value of the limitation fund, was $2.2 million, not $1.25
million. In re American Milling Co., 125 F. Supp. 2d 981 (E.D. Mo. 2001). The court
then directed American Milling “to establish the limitation fund by posting either a
corporate surety bond in the amount of $2.2 million, or depositing cash into the court
registry in the total amount of $2.2 million.” Id. at 987. American Milling elected to
post a bond.

In June 2003, following a trial, the district court determined that American
Milling was eighty percent at fault for the allision, and attributed the remaining twenty
percent of fault to President Casino. In re American Milling Co., 270 F. Supp. 2d
1068 (E.D. Mo. 2003). The court also concluded that American Milling was entitled
to limit its liability under the Limitation Act to the $2.2 million value of the M/V
Anne Holly. Id. This court affirmed those determinations in May 2005, and
remanded the case for further proceedings regarding damages. In re American Milling
Co., 409 F.3d at 1022.

American Milling moved on remand to deposit the cash value of the limitation
fund, along with the simple interest accrued on its security since April 6, 1998, into
the registry of the district court. The court initially granted the motion, on the
mistaken impression that the request was unopposed, but President Casino filed a
motion to set aside the court’s order. President Casino’s position was that interest on
the fund should be compounded annually, and that American Milling should be
required to maintain the surety bond throughout the proceedings.

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 President Casino invoked principles of equity to urge that the security should
be maintained in the form most beneficial to the claimants, which in this case was the
bond, and that interest should be compounded annually. American Milling opposed
the motion to set aside, contending that the “per annum” language of Rule F(1)
permitted only simple interest. The company also asserted that because depositing
funds with the court is a permissible means of offering security for a limitation fund
under Rule F(1), the court could not require American Milling to maintain a bond at
the above-market, six percent interest rate specified in the rule. The district court
granted the claimants’ motion, vacated its order of May 2, 2006, and ordered that the
six percent interest on the surety bond be compounded annually.

II.

American Milling first challenges the district court’s interpretation of the “per
annum” language of Rule F(1) to permit compound interest on the security for the
limitation fund. Rule F(1) is part of the Federal Rules of Civil Procedure, and we
review the district court’s interpretation of the rule de novo. See Burns v. Lawther, 53
F.3d 1237, 1240 (11th Cir. 1995).

As other courts have explained, “Rule F evolved as a procedural device to
implement the [Limitation Act].” Bouchard Transp. Co. v. Updegraff, 147 F.3d 1344,
1347 (11th Cir. 1998). Congress passed the Limitation Act to limit the liability of
shipowners to the post-accident value of the vessel at issue and any pending freight.
“The apparent purpose of the Act was to encourage shipbuilding in this country and
to place the U.S. shipping industry on equal footing with foreign competitors,” who
were protected against claims under European maritime codes. Magnolia Marine
Transp. Co. v. Oklahoma, 366 F.3d 1153, 1155 (10th Cir. 2004) (citing 2 Thomas J.
Schoenbaum, Admiralty & Maritime Law § 15-1, at 137 (2d ed. 1994)). The statute,
however, did not establish a procedure to implement the limitations on liability that
it established. In 1872, the Supreme Court enacted rules to establish a uniform

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judicial procedure by which a vessel owner could seek to limit its liability under the
Limitation Act. Bouchard Transp. Co., 147 F.3d at 1347. Over time, these rules were
amended and relabeled, and Rule F was eventually adopted as part of the Federal
Rules of Civil Procedure. Id.

Rule F allows a vessel owner to file a complaint in district court to petition for
limitation of liability within six months of receiving written notice of a claim. The
owner must provide the court with relevant information regarding pending claims and
the value of the vessel at issue. The district court determines the vessel’s fair market
value to establish the size of the limitation fund, from which damages may be paid to
claimants. Together with the complaint, the vessel owner is required to provide one
of three acceptable forms of security in the amount of the limitation fund. Once the
owner files a valid complaint and provides security for the fund, the court enjoins all
pending claims against the owner, and consolidates those claims into a special
limitation proceeding. The court then determines the liability of the vessel owner and
the proportion of the limitation fund payable to successful claimants.

This appeal focuses on the security for the limitation fund, and the interest
payable on that security. Rule F(1) states that a vessel owner seeking to limit its
liability “shall deposit with the court, for the benefit of claimants, a sum equal to the
amount or value of the owner’s interest in the vessel and pending freight, or approved
security therefor.” If the vessel owner elects to post an approved security, then the
rule requires that the owner give security for “interest at the rate of 6 percent per
annum from the date of the security.” Rule F(1) (emphasis added).

At issue here is the meaning of the “per annum” language of Rule F(1), and the
amount of interest that American Milling must pay on the security that it elected to
post. American Milling argues that the “per annum” provision mandates simple
interest. President Casino and the other claimants contend that the court’s decision

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to award compound interest was within its equitable discretion. We conclude that the
claimants have the better argument.

The operative “per annum” language, standing alone, does not resolve the
dispute. “Per annum” is defined in English to mean “in each year” or “annually.”
Black’s Law Dictionary 1250 (9th ed. 2009). Accordingly, the six percent interest
specified in Rule F(1) is an annual rate, but the plain language does not speak directly
to whether the interest is to accrue on a compound or simple basis.

Rule F, however, was adopted against a background of law already in place.
The provision requiring interest at the rate of six percent per annum from the date of
the security dates back to 1891 when it was adopted as part of what was then known
as Admiralty Rule 54. The Fairwill, 56 F. Supp. 887, 889 (E.D. Va. 1944). In 1920,
due to a renumbering and revision process, the interest provision became part of
Admiralty Rule 51. See 3 David E.R. Wooley & Antonio J. Rodriguez, Benedict on
Admiralty § 5, at 1-25 (7th ed. 2009). In 1966, Rule F replaced Admiralty Rules 51-
54, but retained the “per annum” interest language. See id. at 1-27.

Before 1891, courts enjoyed discretion to determine how much interest, if any,
should be awarded in an admiralty case, and to establish the date from which it would
accrue. The Fairwill, 56 F. Supp. at 889. The purpose of the interest provision,
therefore, was to “take from the courts discretion upon the question of allowing
interest, and to fix a rate of interest and when it should commence to run.” Id. On the
issue of compounding, however, both the Admiralty Rules and the Limitation Act are
silent. Cf. 12 U.S.C. § 1823(g) (stating that interest on certain stock subscriptions
shall be paid in “an amount equal to 2 per centum simple interest per annum”); 28
U.S.C. § 1961(b) (specifying that post judgment interest “shall be compounded
annually”).

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 A limitation of liability proceeding long has been recognized as “the
administration of equity in an admiralty court.” Hartford Accident & Indem. Co. v.
S. Pac. Co., 273 U.S. 207, 216 (1927). Although the “six percent per annum”
provision eliminated some of the court’s equitable discretion, the court retained
considerable latitude to fashion an appropriate equitable remedy in each case. The
absence of a rule on a specific issue such as compounding of interest “merely
indicates that the question is governed by traditional judge-made principles,”
particularly “in admiralty, where the Judiciary has traditionally taken the lead in
formulating flexible and fair remedies.” City of Milwaukee v. Cement Div., Nat’l
Gypsum Co., 515 U.S. 189, 194 (1995) (internal quotation omitted). Accordingly, we
think the better view is that the district court retained equitable discretion to award
compound interest.

The law regarding the related matter of prejudgment interest supports the
reasonableness of the district court’s decision here. Prejudgment interest serves “to
reimburse the claimant for the loss of the use of its investment or its funds from the
time of the loss until judgment is entered.” Arco Pipeline Co. v SS Trade Star, 693
F.2d 280, 281 (3d Cir. 1982). For this reason, courts frequently have awarded
compound prejudgment interest in admiralty suits. The Seventh Circuit explained
why “compound prejudgment interest is the norm in federal litigation:”

Victims who finance their own cleanup [or repairs] lend to themselves;
forced to devote money to a project not of their own choosing (money
they otherwise could have lent out at the market rate of interest), they are
entitled to compensation for the “hire” of this capital. Tortfeasors who
choose to reinvest their money in their business . . . rather than create a
trust fund must believe that the returns in their enterprise exceed the
market rate. Having earned this higher rate of return for the duration of
the litigation, they are in no position to complain when called on to pay
prejudgment interest. An injurer allowed to keep the return on this
money has profited by the wrong.

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In the Matter of Oil Spill by the Amoco Cadiz, 954 F.2d 1279, 1331-32 (7th Cir. 1992)
(internal citations omitted).

Interest on a limitation fund serves a compensatory purpose similar to that of
prejudgment interest. President Casino and the other claimants affected by the M/V
Anne Holly’s allision with the Eads Bridge in 1998 were forced to finance their own
repairs throughout the course of this protracted litigation. They were unable to invest
those funds elsewhere to earn a compound rate of return. At the same time, American
Milling’s ability to post security for the limitation fund enable it to invest the $2.2
million with the prospect of generating compound returns. Prejudgment interest is
inadequate to compensate President Casino for the opportunity cost of the repairs,
because no matter how much prejudgment interest is awarded, the amount of recovery
may not exceed the limitation fund, and the damages alone in this case exceeded the
value of the fund. Principles of equity, and the salutary goal of compensating the
claimants for the use of their capital to repair damage caused by American Milling,
thus support the district court’s determination that the interest on the limitation fund
should be compounded annually.

In opposition to this conclusion, American Milling points to Cherokee Nation
v. United States, 270 U.S. 476 (1926), and the Supreme Court’s statement that “[t]he
general rule, even as between private persons, is that, in the absence of a contract
therefor or some statute, compound interest is not allowed to be computed upon a
debt.” Id. at 490. This common law presumption against compound interest stemmed
from a historical view that interest upon interest was “iniquitous and against public
policy.” Whitcomb v. Harris, 38 A. 138, 140 (Me. 1897). Courts did not wish to
“hasten[] the accumulation of debt,” Abramowitz v. Washington Cemetery Ass’n, 51
A.2d 461, 463 (N.J. Ch. 1947), and “sought to prevent an accumulation of compound
interest in favor of negligent creditors who did not collect their interest when it
became due.” State ex rel. Nw. Mut. Life Ins. Co. v. Bland, 189 S.W.2d 542, 548 (Mo.
1945).

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 The Court in Cherokee Nation, however, cited in turn a series of state court
decisions, including Ellis v. Sullivan, 134 N.E. 695 (Mass. 1922), where the
Massachusetts court indicated an exception to the general rule in cases of equity:

It has long been settled that interest on interest cannot be recovered . . .
because of the ancient unwillingness to allow compound interest. While
this is the general rule, it is not always followed. In equity interest may
be compounded and in the discretion of the court may be allowed where
it is necessary for the purpose of affording a just and equitable
accounting . . . .

Id. at 697 (emphasis added) (internal citations and quotations omitted). Despite the
general presumption against compound interest, decisions like Ellis recognized that
compound interest is permissible in equity, even when prohibited at law. See also
Berman v. B.C. Assocs., 219 F.3d 48, 50 (1st Cir. 2000). Cherokee Nation involved
a contract and a statute that were silent as to compounding, but the proceeding was not
in equity, and the Court had no occasion to consider the equitable discretion to award
compound interest.2

American Milling also relies on United States v. Isthmian Steamship Co., 359
U.S. 314 (1959), a case involving a suit by a private party against the government
under the Suits in Admiralty Act. American Milling contends that Isthmian Steamship
Co. is especially relevant here, because the Suits in Admiralty Act, similar to Rule

2
We note that even in cases at law, the vitality of the common law presumption
against compounding is subject to question in light of modern economic
understanding. See Gotham Partners v. Hallwood Partners, 817 A.2d 160, 173 (Del.
2002) (“The rule or practice of awarding simple interest in this day and age, has
nothing to commend to it – except that it has always been done that way in the past.”)
(internal quotation omitted); Reliable Mech., Inc. v. Naylor Indus. Servs., Inc., 125
S.W.3d 856, 857-58 (Ky. Ct. App. 2003) (holding that compound interest could be
awarded at a court’s discretion where the relevant state statute was silent as to
compounding).

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F(1), called for “interest at the rate of 4 per centum per annum.” Id. at 325 (emphasis
added) (quoting 46 U.S.C. § 743). The Court found “nothing in the rather ambiguous
statute authorizing the accumulation of interest . . . and then a second independent
award of interest which operates upon the first interest,” and concluded that
“[c]ompound interest is not presumed to run against the United States.” Id. The Court
then cited Cherokee Nation to support its conclusion that compound interest was not
permitted. Id.

Although Isthmian Steamship Co., unlike Cherokee Nation, involved an
admiralty proceeding and a statute with “per annum” language, we are not persuaded
that the decision sweeps as broadly as American Milling suggests. The holding of
Isthmian Steamship Co. is limited by its terms to claims for compound interest against
the government, where a special presumption against compounding carried the day.

For these reasons, we conclude that Rule F(1) permits the district court, in its
discretion, to award compound interest at a rate of six percent annually. In the
circumstances of this case, the district court’s award was not an abuse of discretion.

III.

American Milling also challenges the district court’s decision to deny the
company’s motion to deposit the cash value of the limitation fund into the court’s
registry. We review the district court’s interpretation of Rule F(1) de novo, and
examine the court’s exercise of permissible discretion under that rule for abuse of
discretion.

Pursuant to Rule F(1), a vessel owner may post security under the Limitation
Act in one of three ways: “physical surrender of the vessel and pending freight to a

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trustee; a deposit with the court of cash equal to the amount or value of his interest in
the vessel and pending freight; or ‘approved security therefor.’” In re Compania
Naviera Marasia S.A., 466 F. Supp. 900, 901 (S.D.N.Y. 1979) (quoting Rule F(1)).
In January 2001, American Milling elected to post a security, and the district court
approved it. This option required American Milling to pay interest on the security at
the six percent annual rate specified in Rule F(1), but the choice also permitted the
company to have continued use of its cash throughout the proceedings and to avoid
interest payments altogether if the company was not found liable for damages.

Once it became clear that American Milling was liable for eighty percent of the
damages, and interest rates fell below the six percent required by Rule F(1), it was no
longer advantageous for American Milling to maintain the security. A decision to
allow American Milling to deposit the $2.2 million with the court would have favored
the company’s economic interests, but it would have been detrimental to President
Casino and the other claimants. The interest generated through the court’s investment
of the deposited funds almost certainly would have been less than six percent.

American Milling now contends that because depositing cash with the court is
an acceptable method of posting security under Rule F, the district court must allow
it to choose that option at any time during the proceedings, regardless of the effect on
the claimants. But given that a limitation proceeding is “the administration of equity
in an admiralty court,” Hartford Accident & Indem. Co., 273 U.S. at 216, it was
reasonable for the court to give substantial weight to the negative impact of American
Milling’s motion on the claimants, who had been forced to finance their own repairs
and thereby lend to themselves throughout the proceedings. See The Ontario No. 1,
80 F.2d 85, 87 (2d Cir. 1935); In re Kingston Shipping Co., 182 A.M.C. 134, 135-36
(M.D. Fla. 1982). American Milling could have chosen under Rule F(1) to deposit
cash with the court at the beginning of the proceedings, but it was not an abuse of

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discretion for the district court to forbid the company to change its position at a late
stage in the litigation in a manner that would have been detrimental to the claimants.

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The judgment of the district court is affirmed.
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