IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 00-30428
In Re: In the Matter of the Complaint: HELLENIC INC.,
as Owner & Operator of the Spud Barge Athena 107
for Exoneration from or Limitation of Liability,
doing business as Athena Construction
--------------------------
HELLENIC INC., In the Matter of the Complaint of Hellenic Inc.
as Owner & Operator of the Spud Barge Athena 107
for Exoneration from or Limitation of Liability,
doing business as Athena Construction,
Plaintiff - Appellant,
versus
BRIDGELINE GAS DISTRIBUTION LLC; TEXACO EXPLORATION
AND PRODUCTION INC.,
Defendants - Appellees.
Appeal from the United States District Court
for the Western District of Louisiana
May 21, 2001
Before REYNALDO G. GARZA, HIGGINBOTHAM, and SMITH, Circuit Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge:
This case requires us to return again to the Limited Liability
Act. The vessel owner appeals a denial of limited liability for
damage caused by one of its employees to a submerged pipeline,
arguing that the company lacked the requisite "privity and
knowledge." We find the argument persuasive and now reverse.
I
Athena Construction is a division of Appellant Hellenic, Inc.
Athena has been engaged in marine construction since the late
1970s. It is the only division of Hellenic engaged in maritime
work. Athena contracted with Texaco Exploration and Production,
Inc. to install pipeline in Texaco's Rabbit Island Field in
Atchafalaya Bay, Louisiana. On February 7, 1997, the Athena 107—a
"spud barge" owned by Athena—was "spudded down" in the field.1 In
the early morning hours of February 8, 1997, wind and sea moved the
Athena 107, causing it to strike and rupture a twenty-inch natural
gas pipeline owned by Bridgeline Gas Distribution LLC. The parties
have stipulated that Bridgeline spent $250,959.90 to repair the
line.
Dana Lee, a construction superintendent employed by Athena,
made the decision to leave the barge unmanned and anchored by its
spuds. Lee had worked on the Rabbit Island Field for approximately
fifteen years. He had authority over the operation of all four
vessels used by Athena in the project, including the Athena 107. He
also supervised two contract divers engaged by Athena to bury
1
A spud barge is a "flat-decked floating structure that has
devices similar to legs, called spuds, which are lowered from
underneath the barge and pushed into the waterway floor to anchor
the structure in place." Hurst v. Pilings & Structures, Inc., 896
F.2d 504, 506 (11th Cir. 1990).
2
pipeline. In addition, he dealt with Texaco's project inspectors
regarding whether Texaco would conduct a survey to determine the
existence of other pipelines in the vicinity. He was required to
confer with Drake Stansbury, Athena's president, only if Texaco
suggested that work be done which appeared to fall outside the
scope of the project.
Lee formed part of Athena's relatively compact corporate
structure. In addition to Stansbury, two other employees exercised
management responsibility: Albert Aucoin, Athena's General
Superintendent, and Phillip Thomas, Athena's Safety Director.
Beneath Aucoin and Thomas on the corporate hierarchy were Athena's
four construction supervisors, or field superintendents: Dana Lee,
Charles Clinton, Jimmy Aucoin, and Billy Kennerson. Each
construction supervisor was in charge of supervising the particular
construction project in the field he had been assigned.
For purposes of the Rabbit Field project, Stansbury considered
Lee his "eyes and ears on the job." However, Stansbury also
testified that construction supervisors do not make "business
decisions" on behalf of Athena. For instance, Lee could not execute
binding contracts, set Athena's prices, or hire and fire Athena
employees.2 Nor did he have any administrative responsibilities
with either Athena or Hellenic. It is undisputed, however, that Lee
had authority to decide whether and under what circumstances a
2
Drake Stansbury testified that Albert Aucoin, Athena's
general superintendent, had the authority over personnel decisions.
3
barge would remain in the field overnight. Both parties agree that
Lee was negligent in deciding on February 7, 1997 to leave the
barge unmanned and that his decision caused the damage to the
pipeline.
On August 7, 1997, Hellenic filed a Complaint for Exoneration
from or Limitation of Liability. Pursuant to the Limited Liability
Act,3 Hellenic sought to limit its liability to the value of the
Athena 107 and its pending freight. Texaco and Bridgeline then
filed a complaint seeking to recover their costs. The actions were
consolidated. After a bench trial, the district court determined
that Hellenic and Texaco were both negligent and apportioned fault
on the following basis: Hellenic 60 percent, Texaco 40 percent. The
district court denied Hellenic's request for limited liability. The
court awarded Bridgeline the stipulated amount of damages,
$250,959.90. Hellenic appeals this ruling.
II
Hellenic challenges only the district court's denial of
limited liability.4 This Court reviews such a determination for
clear error.5 The Limited Liability Act allows a vessel owner to
3
See 46 U.S.C. §§ 183(a), 185 (2001).
4
Hellenic concedes the district court's finding of negligence
and damages.
5
See Cupit v. McClanahan Contractors, Inc., 1 F.3d 346, 348
(5th Cir. 1993).
4
limit its liability for any loss or injury caused by the vessel to
the value of the vessel and its freight.6 "Under the Act, a party
is entitled to limitation only if it is 'without privity or
knowledge' of the cause of the loss."7 If the shipowner is a
corporation, "knowledge is judged by what the corporation's
managing agents knew or should have known with respect to the
conditions or actions likely to cause the loss."8 Once the claimant
establishes negligence or unseaworthiness, the burden shifts to the
owner of the vessel to prove that negligence was not within the
owner's privity or knowledge.9
The 1895 Act was originally passed "to ensure that American
shipping attracted investment capital that the threat of unlimited
exposure might divert to England," which at that time already
6
46 U.S.C. § 183(a) provides: "The liability of the owner of
any vessel . . . for any embezzlement, loss, or destruction by any
person of any property, goods, or merchandise shipped or put on
board of such vessel, or for any loss, damage, or injury by
collision, or for any act, matter, or thing, loss, damage, or
forfeiture, done, occasioned, or incurred, without the privity or
knowledge of such owner or owners, shall not, except in the cases
provided for in subsection (b) of this section, exceed the amount
or value of the interest of such owner in such vessel, and her
freight then pending." The exception articulated in subsection (b)
is inapplicable to this case.
7
Brunet v. United Gas Pipeline Co., 15 F.3d 500, 504 (5th
Cir. 1994).
8
Id.
9
See Brister v. A.W.I., Inc., 946 F.2d 350, 355 (5th Cir.
1991).
5
granted its ships limited liability.10 The Act predates both the
dominant position of the corporation, which provides limited
liability, and the current breadth of insurance protection.11 This
Court has described the Act as "hopelessly anachronistic," and has
implied that courts should accord it a narrow construction.12
The "privity or knowledge" exception has proven difficult to
apply. Congress did not define these terms, leaving to courts the
task of filling these "empty containers" with meaning.13 In turn,
we have observed that the question of "privity or knowledge must
turn on the facts of the individual case,"14 stating that a
corporation "is charged with the privity or knowledge of its
employees when they are sufficiently high on the corporate
ladder."15 We have further explained that privity or knowledge "is
imputed to the corporation when the employee is 'an executive
officer, manager or superintendent whose scope of authority
10
Continental Oil Co. v. Bonanza Corp., 706 F.2d 1365, 1375-76
(5th Cir. 1983) (en banc).
11
See id. at 1376; see also Maryland Casualty Co. v. Cushing,
347 U.S. 409, 437 (1954); In re Hercules Carriers, Inc., 768 F.2d
1558, 1564-65 (11th Cir. 1985).
12
Continental Oil Co., 706 F.2d at 1376.
13
Brister, 946 F.2d at 355 n.2 (quoting Grant Gilmore &
Charles L. Black, Jr., The Law of Admiralty 877 (2d ed. 1975)).
14
See Gibboney v. Wright, 517 F.2d 1054, 1057 (5th Cir. 1975).
15
Cupit v. McClanahan Contractors, Inc., 1 F.3d 346, 348 (5th
Cir. 1993).
6
includes supervision over the phase of the business out of which
the loss or injury occurred.'"16
These observations reflect, if unevenly, broader and familiar
principles of agency law. A corporate principal is generally
considered to know what its agents discover concerning those
matters in which the agents have power to bind the principal.17 An
agent's knowledge is imputed to the corporation where the agent is
acting within the scope of his authority and where the knowledge
relates to matters within the scope of that authority.18 While
courts generally agree that the knowledge of directors or key
officers, such as the president and vice president, is imputed to
the corporation,19 they differ as to the effect of knowledge
16
Id. (quoting Coryell v. Phipps, 317 U.S. 406, 410 (1943));
see also In re Kristie Leigh Enters., Inc., 72 F.3d 479, 481 (5th
Cir. 1996) (holding that a corporate owner is charged with
knowledge of "any of its managing agents who have authority over
the sphere of activities in question.").
17
See American Standard Credit, Inc. v. Nat'l Cement Co., 643
F.2d 248, 270-71 n.16 (5th Cir. 1981); W.R. Grace & Co. v. W. U.S.
Indus., Inc., 608 F.2d 1214, 1218 (9th Cir. 1979); Restatement
(Second) of Agency § 272 (1958).
18
See Volkswagen of America, Inc. v. Robertson, 713 F.2d 1151,
1163 (5th Cir. 1983) (applying Louisiana law); American Standard
Credit, Inc., 643 F.2d at 270-71 n.16; 18B Am. Jur. 2d Corporations
§ 1671 (1985).
19
See City State Bank in Wellington v. U.S. Fidelity &
Guaranty Co., 778 F.2d 1103, 1109-10 (5th Cir. 1985); American
Standard Credit, 643 F.2d at 270-71 n.16; In re Pubs, Inc. of
Champaign, 618 F.2d 432, 438 (7th Cir. 1980); Whitten v. Bob King's
AMC/Jeep, Inc., 231 S.E.2d 891, 894 (N.C. 1977); 18B Am. Jur. 2d
Corporations § 1673. But cf. In re American Biomaterials Corp., 954
F.2d 919, 927 (3d Cir. 1992) (holding that a corporation can not
7
acquired by other employees. The decision on whether to impute
knowledge acquired by such employees tends to be fact-intensive and
contingent on the specific legal regimes involved.20
Some threshold for imputation is required. As this Court has
noted in applying the Limited Liability Act, "[b]ecause a
corporation operates through individuals, the privity and knowledge
of individuals at a certain level of responsibility must be deemed
the privity and knowledge of the organization, 'else it could
always limit its liability.'"21 At one level, then, the imputation
of knowledge is a creature of necessity.
In restricting the privity and knowledge exception to managing
agents, however, the limited liability doctrine is also sensitive
to the scope of an owner's control over his agents. Thus, a
master's navigational errors at sea are generally not attributable
automatically be held vicariously liable for penalties imposed due
to officers' criminal acts against the corporation).
20
See Lee v. Mitcham, 98 F.2d 298, 301 (D.C. Cir. 1938)
(imputing knowledge of treasurer to corporation in dispute over
payment of notes); Marvel Specialty Co. v. Magnet Mills, Inc., 297
F. Supp. 1026, 1030 (S.D.N.Y. 1969) (imputing comptroller's
knowledge to corporation in patent infringement suit); Georgia Pac.
Corp. v. Great Plains Bag Co., 614 F.2d 757, 762-63 (C.C.P.A. 1980)
(imputing knowledge of salespersons to corporation in trademark
dispute). Cf. United States v. Hangar One, Inc., 563 F.2d 1155,
1158 (5th Cir. 1977) (holding that a corporation may be vicariously
liable under the False Claims Act for the conduct of employees
other than those possessing "substantial authority and broad
responsibility").
21
Continental Oil Co. v. Bonanza Corp., 706 F.2d 1365, 1376
(5th Cir. 1983) (en banc) (quoting Coryell v. Phipps, 317 U.S. 406,
410-11 (1943)).
8
to the owner.22 When the owner is so far removed from the vessel
that he can exert no control over the master's conduct, he should
not be held to the master's negligence. In such cases, the owner
may rely on the master's skill and expertise.23
This reasoning is consistent with the principle that "[t]he
duty to control increases along with the possibility of control."24
Indeed, one justification for vicarious liability is that it
encourages employers to more effectively supervise employees.25
Where a corporation grants its agents significant discretion and
autonomy, it is reasonable to deny limitation and thereby hold the
company liable for the full range of consequences resulting from
its decision. Where greater supervision is not possible—e.g., where
the master is at sea, far from the owner's control—limited
22
See id. at 1376-77 & n.15.
23
See id. at 1377 n.15; Grant Gilmore & Charles L. Black, Jr.,
The Law of Admiralty 877 (2d ed. 1975); see also Spencer Kellogg &
Sons, Inc. v. Hicks, 285 U.S. 502, 511-12 (1932).
24
Avera v. Florida Towing Corp., 322 F.2d 155, 165 (5th Cir.
1963) (quoting Grant Gilmore & Charles L. Black, Jr., The Law of
Admiralty 704 (1st ed. 1957)); Waterman Steamship Corp. v. Gay
Cottons, 414 F.2d 724, 734 (9th Cir. 1969); see also In re Patton-
Tully Transp. Co., 797 F.2d 206, 211-12 (5th Cir. 1986).
25
See Ridglea, 357 F.2d at 499.
9
liability is more desirable.26 The "managing agent" standard
reflects these concerns.27
The dispositive question in this case is therefore whether
Lee's position in the corporate hierarchy was sufficiently elevated
to impute his knowledge to Athena. We have emphasized that it is
the "extent of the employee's responsibility, not his title, [that]
determines whether limitation is foreclosed."28 Courts are to
determine whether the employee is a "managing agent with respect to
the field of operations in which the negligence occurred."29
Although this determination is case-specific, courts have looked to
a number of factors: (1) the scope of the agent's authority over
26
The mere possibility of control, however, does not
automatically trigger a denial of limited liability. See Waterman
Steamship Corp., 414 F.2d at 734-35 ("Although modern communication
and transportation facilities make all acts performed in any
foreign port within the potential control of the shipowner, we
believe that an extension of the requirement of privity or
knowledge to cover all such acts should only come from Congress.")
(footnotes omitted).
27
We emphasize that autonomy and discretion may be desirable
and necessary for the functioning of a business. The agency
principles articulated in the limited liability context merely
recognize that, at some level, employee autonomy carries a price.
This doctrine attempts, in part, to discourage owners and corporate
principals from willfully insulating themselves from knowledge and
involvement with the operations of their subordinates merely to
secure limited liability. See Avera, 322 F.2d at 163-64, 166.
28
Continental Oil Co. v. Bonanza Corp., 706 F.2d 1365, 1377
n.16 (5th Cir. 1983) (en banc); see also In re P. Sanford Ross,
Inc., 204 F. 248, 251 (2d Cir. 1913) (per curiam).
29
Continental Oil Co., 706 F.2d at 1376.
10
day-to-day activity in the relevant field of operations;30 (2) the
relative significance of this field of operations to the business
of the corporation;31 (3) the agent's ability to hire or fire other
employees;32 (4) his power to negotiate and enter into contracts on
behalf of the company;33 (5) his authority to set prices;34 (6) the
agent's authority over the payment of expenses;35 (7) whether the
agent's salary is fixed or contingent;36 and (8) the duration of his
30
See id. at 1375-77; Cupit v. McClanahan Contractors, Inc.,
1 F.3d 346, 348 (5th Cir. 1993); Avera v. Florida Towing Corp., 322
F.2d 155, 160-63, 166 (5th Cir. 1963); In re New York Dock Co., 61
F.2d 777, 778-79 (2d Cir. 1932). We might refer to the kind of
authority articulated above as "operational authority." For present
purposes, the agent's operational authority excludes the power to
hire or fire, set prices, negotiate and execute contracts, and pay
expenses. In this case, Lee exercised operational authority in
deciding to leave the barge spudded down and unmanned overnight. As
this Court's jurisprudence recognizes, an agent's operational
authority is also measured by the extent to which his actions are
subject to supervision.
31
See Continental Oil Co., 706 F.2d at 1376.
32
See Continental Oil Co., 706 F.2d at 1376; Avera, 322 F.2d
at 162; In re Jeremiah Smith & Sons, Inc., 193 F. 395, 397 (2d Cir.
1911).
33
See Continental Oil Co., 706 F.2d at 1375-76; Avera, 322
F.2d at 162; Parsons v. Empire Transp. Co., 111 F. 202, 208 (9th
Cir. 1901).
34
See Avera, 322 F.2d at 162.
35
See Continental Oil Co. v. Bonanza Corp., 706 F.2d 1365,
1375 (5th Cir. 1983) (en banc); Avera v. Florida Towing Corp., 322
F.2d 155, 162 (5th Cir. 1963); In re Jeremiah Smith & Sons, Inc.,
193 F. 395, 397 (2d Cir. 1911).
36
See Continental Oil Co., 706 F.2d at 1376; Avera, 322 F.2d
at 161.
11
authority (i.e., full-time or restricted to a specific shift).37
These factors are non-exhaustive and merely indicate the array of
considerations that are potentially relevant to the managing agent
inquiry.38
Two Fifth Circuit cases are particularly instructive:
Continental Oil Company v. Bonanza Corporation39 and Cupit v.
McClanahan Contractors, Inc.40 In Continental Oil, this Court found
that a vessel captain was a managing agent for the owner. Bonanza,
which was primarily engaged in land development, had a single
maritime venture: operation of the vessel in question, which was
chartered to scuba diving groups and other companies. The vessel
captain was held to be a managing agent "with respect to the field
of operations in which the negligence occurred" given the extent of
his duties and "the minimal supervision he received from the
corporate officers."41 He had "carte blanche" to negotiate and carry
out scuba charters, although he needed authorization to conduct
37
See Cupit v. McClanahan Contractors, Inc., 1 F.3d 346, 348
(5th Cir. 1993).
38
Not every factor articulated above will be relevant in a
given case. Moreover, we make no a priori judgment as to the
relative importance of such factors. The weight given to each
factor hinges on the specific facts of a case.
39
706 F.2d 1365 (5th Cir. 1983) (en banc).
40
1 F.3d 346 (5th Cir. 1993).
41
Continental Oil, 706 F.2d at 1376.
12
other charters.42 Despite nominal supervision, the captain further
decided which purchases and repairs to make. He also hired the crew
for each trip without consulting the vessel owner. In addition, he
received a commission for each trip instead of a fixed salary.
Observing that Bonanza was primarily engaged in land-based
activities, the Court found that the captain was in near-complete
control over Bonanza's maritime field of operations.43
In Cupit, this Court reversed the district court's finding
that a toolpusher who was in charge of a drilling rig was a
managing agent. While the toolpusher had "authority over all phases
of operations" on the rig, this Court held that the district court
had "overstate[d] the scope of [the toolpusher's] authority."44 This
Court observed: "[t]he fact that a ship's master has been given
broad and unlimited agency powers over the operation and
maintenance of the vessel is insufficient to impute the master's
mistake to the shipowner."45 During his shift, the toolpusher had
authority over the drilling job as long as the rig was stationary
and drilling. However, nine other toolpushers—i.e., one per rig—
possessed similar authority for their respective rigs. The Court
42
Id. at 1375.
43
Id.
44
Cupit, 1 F.3d at 348.
45
Cupit v. McClanahan Contractors, Inc., 1 F.3d 346, 348 (5th
Cir. 1993).
13
observed that the toolpusher's authority "did not extend to the
basic business decisions made by the drilling supervisors and the
president of the company."46
Although Lee's authority falls somewhere between the authority
possessed by the agents in Continental Oil and Cupit, he shares
more of the characteristics of the toolpusher in Cupit. On the one
hand, Lee had greater authority than the toolpusher in Cupit, whose
responsibility only extended to drilling operations on one among
several rigs, and only during his shift.47 In contrast, Lee
supervised four vessels and the entire Rabbit Field project.
However, he had no authority, once the job was completed, to decide
when and where the next job would take place. Lee was also required
to confer with Stansbury if Texaco suggested that work be done
which appeared to fall outside the scope of the project. Unlike the
captain in Continental Oil, he lacked the authority to enter into
contracts and determine pricing. Nor was Lee given the power to
hire and fire other employees. Whereas the captain in Continental
Oil had authority over the company's entire maritime field of
operations, Lee only exercised authority over one of the company's
four construction projects. Although he may have possessed
significant power over the management of an individual job, Lee
could not make "basic business decisions" for Athena. Because he
46
Id.
47
Cupit, 1 F.3d at 348.
14
lacked this broader authority over business decisions undertaken by
the corporation, Lee did not possess managing authority over "the
field of operations in which the negligence occurred."48 The
undisputed facts of this case compel us to hold that the district
court's finding was clearly erroneous.49 We therefore REVERSE the
judgment of the district court and REMAND for proceedings not
inconsistent with this opinion.
REVERSED and REMANDED.
48
Continental Oil, 706 F.2d at 1376.
49
See Cupit, 1 F.3d at 348 ("A finding is clearly erroneous
when although there is evidence to support it, the reviewing court
on the entire evidence is left with a definite and firm conviction
that a mistake has been committed.") (quotations omitted).
15