[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FILED
FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS
________________________ ELEVENTH CIRCUIT
MAR 6, 2009
No. 08-13398 THOMAS K. KAHN
________________________ CLERK
D. C. Docket No. 06-60889-CV-JIC
ST. PAUL FIRE AND MARINE INSURANCE COMPANY,
Plaintiff-
Counter-Defendant-
Appellee,
versus
LAGO CANYON, INC.,
Defendant-
Counter-Claimant-
Third-PartyPlaintiff-
Appellant,
versus
H M Y YACHT SALES, INC.,
SUNSEEKER INTERNATIONAL LIMITED,
Third-Party Defendants,
SUNSEEKER FLORIDA, INC.,
TROPICAL MARINE AIR CONDITIONING, INC.,
Third-Party Defendants-
Appellees.
________________________
Appeal from the United States District Court
for the Southern District of Florida
_________________________
(March 6, 2009)
Before HULL, WILSON and HILL, Circuit Judges.
HULL, Circuit Judge:
Defendant-Appellant Lago Canyon, Inc. (“Lago Canyon”) appeals the
district court’s entry of a final judgment in favor of Plaintiff-Appellee St. Paul Fire
& Marine Insurance Company (“St. Paul”). Lago Canyon owns a yacht that
partially sank at a dock while undergoing engine repairs, causing over $1.2 million
in damages. Lago Canyon filed a damage claim under its marine insurance policy
(“the Marine Policy”) from St. Paul.
St. Paul filed a complaint for a declaratory judgment that the Marine Policy
did not cover the damage because it was caused by a corroding part. Lago Canyon
counterclaimed for breach of contract (i.e., the Marine Policy). After a three-day
bench trial, the district court found that the “proximate cause of the damage was
the failure of a hose barb which resulted from corrosion,” that the Marine Policy
excluded corrosion, and that “the loss is not covered by the [Marine] Policy unless
a provable manufacturer’s defect can be shown.” The district court also found that
2
the manufacturer’s “use of yellow brass [for the hose barb] knowing its exposure to
saltwater created a condition likely to cause corrosion” but that this defect was not
covered by the term “manufacturer’s defect” in the Marine Policy.
Lago Canyon appeals, claiming the district court erred in: (1) applying
admiralty law and striking Lago Canyon’s demand for a jury trial; (2) concluding
that the Marine Policy did not cover the damage to the yacht; and (3) not awarding
Lago Canyon prejudgment interest on the towing charges. After review and oral
argument, we affirm in part and reverse in part.
I. THE MARINE POLICY AND PROCEDURAL HISTORY
Lago Canyon is the named insured under the “all risks” Marine Policy
issued by St. Paul. The Marine Policy states that the Quay Marine Agreement, any
endorsements or amendments thereto, and the declarations page constitute the
coverage on the yacht. The Marine Policy has a property damage limit of $1.4
million, a property damage deductible of $7,500, and a personal property damage
limit of $35,000.
The property damage coverage section of the Marine Policy provides that St.
Paul “will pay for accidental direct physical loss of or damage to [the] yacht except
as specifically stated or excluded in this policy.” The parties agree that
“accidental” loss or damage to the yacht covers fortuitous loss unless subject to an
3
exclusion. The coverage paragraph also states that if the loss is caused by a
“provable manufacturer’s defect,” no deductible will apply.1 The district court
concluded that the Marine Policy indicates that a loss must be fortuitous to be
covered and that a “manufacturer’s defect” is an example of a covered, fortuitous
loss where no deductible applies.2
The Marine Policy, however, expressly excludes loss or damage “caused by
or resulting from . . . corrosion,” as follows:
Exclusions: We will not provide Property Damage Coverage for any
loss or damage caused by or resulting from wear and tear, electrolysis,
lack of maintenance, corrosion, deterioration, mold, or fiberglass
blistering.
(Emphasis added). The commercial towing section of the Marine Policy covers
reasonable costs, up to $7,500, to tow the yacht if it is “disabled from a cause other
1
The property damage coverage section of the Marine Policy provides:
Coverage Provided: We will pay for accidental direct physical loss or damage to
your yacht except as specifically stated or excluded in the policy. . . . If the loss or
damage is caused by a provable manufacturer’s defect, caused by fire not
originating from your yacht, or results from a collision caused by another vessel,
no deductible will apply.
2
In its earlier summary judgment order, the district court concluded that “if there is a
provable manufacturer’s defect then no deductible will apply thus giving rise to the inference
that a provable manufacturer’s defect is covered by the policy.” In this appeal, St. Paul does not
dispute that loss caused by a “manufacturer’s defect” is an example of a covered loss. However,
as discussed later, the parties hotly dispute what is encompassed within the term “manufacturer’s
defect” in the Marine Policy.
4
than a covered loss.”3
St. Paul issued a Reservation of Rights advising Lago that its loss might not
be covered. St. Paul then filed a declaratory judgment action based on admiralty
jurisdiction under 28 U.S.C. § 1333(1).4 St. Paul’s complaint alleged, “[T]his
action concerns a policy of marine insurance on a vessel, which is deemed a
maritime contract, giving rise to admiralty and maritime jurisdiction.” It is well
settled that cases involving marine contracts give rise to admiralty jurisdiction.
See, e.g., Norfolk S. Ry. Co. v. Kirby, 543 U.S. 14, 23, 125 S. Ct. 385, 392-93
(2004). St. Paul’s complaint also invoked Rule 9(h) of the Federal Rules of Civil
Procedure, which allows plaintiffs to elect admiralty jurisdiction over “some other
ground” of federal jurisdiction.5 In other words, if there are two grounds for
3
The commercial towing section of the Marine Policy provides:
We will pay up to the amount of Commercial Towing / Emergency Services
coverage shown on the Declarations Page for the following reasonable costs you
incur if your yacht is disabled from a cause other than a covered loss:
1. towing to the nearest facility where proper repairs can be made.
2. emergency labor at the breakdown site.
3. the delivery of fuel, oil, battery or repair parts (excluding payment for
the cost of these items).
4. tender trailer road service.
4
28 U.S.C. § 1333(1) provides:
The district courts shall have original jurisdiction, exclusive of the courts of the States,
of: (1) Any civil case of admiralty or maritime jurisdiction, saving to suitors in all cases
allther remedies to which they are otherwise entitled.
o
5
Rule 9(h) currently provides:
(h) Admiralty or Maritime Claim.
(1) How Designated. If a claim for relief is within the admiralty or
maritime jurisdiction and also within the courts’ subject-matter
jurisdiction on some other ground, the pleading may designate the claim
as an admiralty or maritime claim for purposes of Rules 14(c), 38(e), and
5
jurisdiction in the same case—such as admiralty and diversity jurisdiction—Rule
9(h) provides that the plaintiff may elect to proceed in admiralty.
Lago Canyon counterclaimed that St. Paul had breached its contract (i.e., the
Marine Policy) by refusing to pay the damages to the yacht and demanded
prejudgment interest. Lago Canyon’s counterclaim is the flip side of St. Paul’s
own claim. Lago Canyon asserts its loss is covered by the Marine Policy, and St.
Paul asserts no coverage. Thus, both parties make claims under the same maritime
insurance contract. Lago Canyon’s counterclaim also alleged that the action was
between citizens of different states and the amount in controversy exceeded
$75,000. Lago Canyon separately demanded a jury trial.
St. Paul then moved to strike Lago Canyon’s demand for a jury trial. Based
on our precedent in Harrison v. Flota Mercante Grancolombia, S.A., 577 F.2d 968
(5th Cir. 1978),6 the district court granted St. Paul’s motion and struck Lago
Canyon’s jury demand. The district court noted that “[t]he issue before the Court
is whether St. Paul’s election to bring this case in admiralty precludes Lago
82 and the Supplemental Rules for Admiralty or Maritime Claims and
Asset Forfeiture Actions. A claim cognizable only in the admiralty or
maritime jurisdiction is an admiralty or maritime claim for those purposes,
whether or not so designated.
(2) Designation for Appeal. A case that includes an admiralty or maritime
claim within this subdivision (h) is an admiralty case within 28 U.S.C. §
1292(a)(3).
Fed. R. Civ. P. 9(h) (2006).
6
This Court adopted as binding precedent all Fifth Circuit decisions prior to October 1,
1981. Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc).
6
[Canyon] from demanding a jury trial on its related state common law
counterclaim.” The district court concluded that St. Paul’s Rule 9(h) designation
of its marine insurance claim as an admiralty claim trumped Lago Canyon’s jury-
trial right on its breach-of-contract counterclaim where Lago Canyon’s
counterclaim arose out of the same operative facts and same Marine Policy as St.
Paul’s claim. The district court recognized that there was a split of authority on
this issue but concluded the binding precedent in Harrison required that both
claims be tried by the court.7
After a three-day bench trial, the district court declared that St. Paul’s
Marine Policy did not cover Lago Canyon’s damage and granted final judgment in
favor of St. Paul. First, the district court found that: (1) the hose barb failed and
caused the water intrusion, sinking, and damage; (2) there was “[c]lear and
convincing evidence that the proximate cause of the loss was the failure of the hose
barb which resulted from corrosion”; (3) “both experts determined that the hose
barb failed because of corrosion, albeit they each found a different type of
corrosive process was present”8 ; and (4) “[t]he use of yellow brass knowing its
exposure to saltwater created a condition likely to cause corrosion.”
7
See infra note 14 (detailing circuit split).
8
The district court noted that St. Paul’s expert, David Wills, testified that the hose barb
failed primarily due to galvanic corrosion, and a second type of corrosion, dezincification
corrosion, also contributed. Lago Canyon’s expert, Frank Grate, testified that the hose barb
failed due to dezincification, which is a subclassification of “parting” corrosion.
7
The district court acknowledged that the Marine Policy covered loss caused
by a “manufacturer’s defect.” Because the Marine Policy explicitly excludes
damage “caused by or resulting from corrosion,” the district court determined that
“the loss is not covered by the [Marine] Policy unless a provable manufacturer’s
defect can be shown.”
The district court treated the term “manufacturer’s defect” in the Marine
Policy as meaning a “manufacturing defect” and then distinguished between a
“manufacturing” defect, a problem in the manufacturing process, and a design
defect, a problem with the design of the product. The district court concluded that
only manufacturing defects, not design defects, were covered by the Marine Policy.
As to manufacturing defects, the district court found that Lago Canyon “failed to
submit any evidence to establish that the hose barb deviated from the
manufacturer’s own design, standards or specifications, or establish that something
went wrong during the manufacturing process.”
The district court ordered St. Paul to pay a $7,500 towing fee to Lago
Canyon because the Marine Policy covered towing fees if the yacht was disabled
from a cause other than a covered loss. Lago Canyon incurred a towing fee of
$18,500.9 The district court’s order did not mention prejudgment interest.
II. BENCH VS. JURY TRIAL
9
Lago Canyon paid the entire $18,500 towing fee itself when St. Paul refused pay.
8
On appeal, Lago Canyon claims that the district court erred in striking its
jury demand. We first review our Harrison precedent, which the district court
applied as controlling on the admiralty and jury trial issue.10
A. Our Harrison Precedent
In Harrison, the plaintiff was a longshoreman who came into contact with
liquid chemical isobutyl acrylate (IBA) while cleaning up a spill on a ship. 577
F.2d at 972. The plaintiff’s condition steadily deteriorated until he was left totally
disabled. Id. The plaintiff sued the vessel’s owner, alleging negligence and
unseaworthiness. Id. at 973. The plaintiff designated his claim as one “within the
admiralty jurisdiction of this Honorable Court as that term is defined by Section
9(h).”11 Id.
10
The issue of whether the district court erred in striking Lago Canyon’s jury claim
presents a legal question, which we review de novo. Otero v. United States, 499 F.3d 1267,
1269 (11th Cir. 2007).
11
At the time of Harrison, Rule 9(h) stated, in relevant part:
Admiralty and maritime claims. A pleading or count setting forth a claim for
relief within the admiralty and maritime jurisdiction that is also within the
jurisdiction of the district court on some other ground may contain a statement
identifying the claim as an admiralty or maritime claim for the purposes of Rules
14(c), 38(e), 82, and the Supplemental Rules for Certain Admiralty and Maritime
Claims. If the claim is cognizable only in admiralty, it is an admiralty or
maritime claim for those purposes whether so identified or not. The amendment
of a pleading to add or withdraw an identifying statement is governed by the
principles of Rule 15. The reference in Title 28 U.S.C. § 1292(a)(3) to admiralty
cases shall be construed to mean admiralty and maritime claims within the
meaning of this subdivision (h).
Since Harrison, the form (but not the substance) of Rule 9(h) has been amended slightly. In any
event, there is no question that St. Paul had the right to invoke the court’s admiralty jurisdiction
as to the Marine Policy. The only question is whether this precluded Lago Canyon from
invoking diversity jurisdiction and obtaining a jury trial.
9
The defendant vessel-owner then impleaded the plaintiff’s employer,
alleging that any unseaworthiness of the vessel was due to the employer’s
negligence. Id. The employer, in turn, filed a fourth-party complaint against the
shipper of the IBA, seeking indemnification based upon products liability and
negligent failure to warn of the dangerous propensities of IBA. Id. The defendant
vessel-owner then asserted a claim against the shipper. Id. The plaintiff amended
his complaint to state a claim against the fourth-party defendant shipper, alleging
products liability and negligent failure to warn, and the plaintiff again specified in
his pleading that the action was within the court’s admiralty jurisdiction under
Rule 9(h). Id. After a bench trial, the trial court awarded a $246,695.66 judgment
for the plaintiff solely against the fourth-party defendant, the shipper of the IBA.
Id.
The fourth-party defendant shipper of the IBA appealed, arguing, inter alia,
that it was deprived of its right to trial by jury. Id. The shipper emphasized that
the actions against it were predicated on negligence and products liability and, as
such, fell within the diversity jurisdiction of the district court.12 Id.
This Court concluded that the district court did not err in denying the
12
The shipper also argued it should be granted a jury trial because the fourth-party
complaint cited Federal Rule of Civil Procedure 14(a) (the general indemnity provision) rather
than Rule 14(c) (the admiralty indemnity provision) as the basis for the indemnity action against
the shipper. Harrison, 577 F.2d at 973. This Court rejected this argument, refusing to permit a
third-party defendant to emasculate the election given to the plaintiff by Rule 9(h) by exercising
the simple expedient of bringing in a fourth-party defendant. Id. at 987.
10
shipper’s demand for a jury trial. Id. at 974. First, we explained the history of
Rule 9(h) and how it preserves a non-jury trial when cases involve both admiralty
and some other basis for jurisdiction, as follows:
The unification of the admiralty and civil rules in 1966 was intended
to work no change in the general rule that admiralty claims are to be
tried without a jury. Fed. R. Civ. P. 9(h) serves only as a device by
which the pleader may claim the special benefits of admiralty
procedures and remedies, including a non-jury trial, when the
pleadings show that both admiralty and some other basis of federal
jurisdiction exist.
Id. at 986 (quotation marks and citations omitted). We explained that, in such dual
jurisdiction cases, the plaintiff may elect to proceed in admiralty under Rule 9(h),
rather than under diversity jurisdiction, and thereby preclude a defendant from
exercising his right to trial by jury.13 Id. We noted that the Advisory Committee’s
Notes to Rule 9(h) support this conclusion, and quoted those Notes as follows:
“Many claims, however, are cognizable by the district courts whether
asserted in admiralty or in a civil action, assuming the existence of a
nonmaritime ground of jurisdiction. Thus at present the pleader has
(the) power to determine procedural consequences by the way in
which he exercises the classic privilege given by the saving-to-suitors
clause (28 U.S.C. § 1333) or by equivalent statutory provisions. . . .
One of the important procedural consequences is that in the civil
action either party may demand a jury trial, while in the suit in
admiralty there is no right to jury trial except as provided by statute. . .
13
Under the savings-to-suitors clause, a plaintiff in a maritime case alleging an in
personam claim has three options: (1) the plaintiff may file suit in federal court under admiralty
jurisdiction (which occurred in Harrison and here); (2) the plaintiff may file suit in federal court
under diversity jurisdiction; or (3) the plaintiff may file suit in state court. See Atl. & Gulf
Stevedores, Inc. v. Ellerman Lines, 369 U.S. 355, 360, 82 S. Ct. 780, 783-84 (1962); Madruga v.
Superior Court of State of Cal. in and for San Diego County, 346 U.S. 556, 560-61, 74 S. Ct.
298, 300-01 (1954); In re Chimenti, 79 F.3d 534, 537 (6th Cir. 1996).
11
. The unified rules must therefore provide some device for preserving
the present power of the pleader to determine whether these
historically maritime procedures shall be applicable to his claim or
not; the pleader must be afforded some means of designating his claim
as the counterpart of the present suit in admiralty, where its character
as such is not clear. . . . Other methods of solving the problem were
carefully explored, but the Advisory Committee concluded that the
preferable solution is to allow the pleader who now has power to
determine procedural consequences by filing a suit in admiralty to
exercise that power under unification, for the limited instances in
which procedural differences will remain, by a simple statement in his
pleading to the effect that the claim is an admiralty or maritime
claim.”
Id. at 986-87 (quoting Fed. R. Civ. P. 9(h), Advisory Committee Note, 39 F.R.D.
69, 75-76 (1966)).
This Court also noted that “the fourth-party complaint is based upon the
same set of operative facts which gave rise to the first complaint.” Id. at 987. We
added, “[t]hat is, the facts which established admiralty jurisdiction for the
plaintiff’s original claim, injury upon navigable waters performing a task
traditionally performed by seamen, also form[ed] the basis for the fourth-party
action [by the plaintiff against the IBA shipper].” Id. We then determined that
“the plaintiff has specifically elected to pursue a non-jury admiralty claim pursuant
to Rule 9(h)” and that the trial court correctly denied the shipper’s demand for a
jury trial. Id. at 988. We noted that the plaintiff, in amending his complaint to
include a claim against the shipper, specified that he was bringing the claim under
Rule 9(h). Id.
12
B. Lago Canyon’s Jury Demand
In this admiralty-Rule 9(h) case, the district court was, as we are, bound by
Harrison and thus did not err in striking Lago Canyon’s demand for a jury trial. St.
Paul’s declaratory judgment complaint as to its Marine Policy claimed the special
benefits of admiralty procedures, including a non-jury trial, by setting forth why
admiralty jurisdiction existed and by designating this action under Rule 9(h) as one
brought within that admiralty jurisdiction.14 Indeed, Rule 9(h) expressly authorizes
St. Paul to elect to proceed in admiralty rather than “some other ground” of
jurisdiction, such as diversity. Fed. R. Civ. P. 9(h). As explained by the Advisory
Committee Notes to Rule 9(h) quoted in Harrison, this accords with the
longstanding tradition in admiralty proceedings that the pleader has the right to
determine procedural consequences (including the right to a jury trial) by a simple
statement in his pleading that the claim is an admiralty claim. Fed. R. Civ. P. 9(h),
Advisory Committee Note, 39 F.R.D. 69, 75-76 (1966).
Lago Canyon contends that Harrison should not apply because St. Paul
brought a declaratory judgment action, whereas the plaintiff in Harrison brought a
suit for damages. Lago Canyon argues that the Supreme Court’s decision in
Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 79 S. Ct. 948 (1959), requires a
different result from that reached in 1978 in Harrison. St. Paul counters that: (1)
14
St. Paul’s complaint did not allege diversity as an alternative basis of jurisdiction.
13
Beacon Theatres, while involving a suit for declaratory relief, was not an admiralty
case, but an antitrust case under the Sherman Antitrust Act where the Seventh
Amendment right to a jury trial controlled; (2) Rule 9(h) was not at issue; and (3)
there is no Seventh Amendment right to a jury trial on maritime claims.
The problem for Lago Canyon is that Harrison in no way depended on the
fact that the plaintiff filed a complaint for damages instead of a declaratory
judgment against a defendant. Rather, Harrison addressed what happens when
both admiralty and some other ground of federal jurisdiction exist in the same case
and the plaintiff invokes admiralty jurisdiction under Rule 9(h). 577 F.2d at 986-
88. This Court stated in Harrison that, in admiralty cases, “by electing to proceed
under Rule 9(h), rather than by invoking diversity jurisdiction, the plaintiff may
preclude the defendant from invoking the right to trial by jury which may
otherwise exist.” Id. at 986. That is what happened here, which makes Harrison in
point. Thus, our prior panel precedent rule requires us to follow Harrison.15 See
15
Both parties acknowledge that courts are divided on the question of whether a
plaintiff’s Rule 9(h) admiralty designation prevents a defendant from obtaining a jury trial.
Compare Harrison, 577 F.2d 968, and Windsor Mount Joy Mut. Ins. Co. v. Johnson, 264 F.
Supp. 2d 158, 162 (D.N.J. 2003) (concluding that plaintiff’s Rule 9(h) election to proceed in
admiralty jurisdiction could not be “undone . . . through the assertion of a counterclaim that
might have been subject to the Court’s jurisdiction under Section 1332 and a jury trial if brought
in a separate action”), and Camrex (Holdings) Ltd. v. Camrex Reliance Paint Co., 90 F.R.D. 313,
317 (E.D.N.Y. 1981) (concluding that a “plaintiff’s election to sue on an admiralty or maritime
claim as the basis for federal jurisdiction binds the parties in the lawsuit to the inevitable
procedural consequence of a court trial, . . . even where a ‘legal’ counterclaim has been
interposed” (citation omitted)), with Wilmington Trust v. U.S. Dist. Court, 934 F.2d 1026, 1032
(9th Cir. 1991) (concluding that the plaintiff’s “election to proceed in admiralty does not deprive
the Union of a jury trial on the Union’s properly joined [counter]claims”), and In re Lockheed
Martin Corp., 503 F.3d 351, 358 (4th Cir. 2007) (concluding that defendant-insured Lockheed
14
Saxton v. ACF Indus., Inc., 239 F.3d 1209, 1214 (11th Cir. 2001) (“[U]nder this
Circuit’s prior panel precedent rule, we are bound by the holding of the first panel
of this Court to address an issue of law, unless and until that holding is overruled
en banc or by the Supreme Court.”); Cohen v. Office Depot, Inc., 204 F.3d 1069,
1076 (11th Cir. 2000) (“[T]he prior panel precedent rule is not dependent upon a
subsequent panel’s appraisal of the initial decision’s correctness. Nor is the
operation of the rule dependent upon the skill of the attorneys or wisdom of the
judges involved with the prior decision—upon what was argued or considered.”).
Accordingly, under our prior panel precedent rule, we affirm the district
court’s order striking Lago Canyon’s demand for a jury trial.16
III. MANUFACTURER’S DEFECT
On appeal, Lago Canyon asserts that the manufacturer’s choice of yellow
brass for the hose barb was a manufacturer’s design defect which resulted in the
corrosion and that the district court erred in concluding that the term
was entitled to a jury trial on its ship-damage claim under the savings-to-suitors clause against
plaintiff-insurer and stating that although plaintiff-insurer brought declaratory judgment action
first and designated its claim as one in admiralty, Beacon Theatres requires courts to ignore
plaintiff’s declaratory judgment action and look to how action would have proceeded otherwise),
cert. denied, 128 S. Ct. 2080 (2008).
16
Lago Canyon also claims that St. Paul delayed service of its complaint in an attempt to
manipulate the district court’s decision to proceed without a jury. Lago Canyon asserts that it
was mailed a copy of the complaint over two months after the suit was filed. However, there is
no evidence to suggest that St. Paul engaged in any abusive tactics in filing its complaint before
Lago Canyon filed its own. Lago Canyon was put on notice of a coverage dispute by St. Paul’s
Reservation of Rights sent on April 6, 2006. Lago Canyon could have brought its own action at
this time. St. Paul did not file its complaint until June 20, 2006.
15
“manufacturer’s defect” in the Marine Policy did not cover design defects. More
specifically, Lago Canyon emphasizes that its trial evidence showed that: (1) the
hose barb corroded because it was made of yellow brass; (2) yellow brass was a
material unsuitable for a part exposed to salt water; and (3) the use of yellow brass
constituted a design defect by the manufacturer.17 In other words, Lago Canyon
contends that the manufacturer’s design defect caused the hose barb failure and
ultimate water intrusion.
At trial, St. Paul responded that: (1) yellow brass fittings in vessels, such as
this hose barb, provide many years of service but must be properly maintained; (2)
the corrosion process here took approximately seven years; (3) wear and tear is a
natural part of the service life of a material; (4) Lago Canyon failed to maintain
and inspect the hose barb; and (5) in any event, the manufacturer’s choice of
yellow brass for its product is a design defect, not a manufacturing defect, and not
covered by the Marine Policy.18
17
We review a district court’s interpretation of a contract de novo. Ohio Cas. Ins. Co. v.
Holcim (US), Inc., 548 F.3d 1352, 1356 (11th Cir. 2008).
18
Courts and the Restatement of Torts distinguish between design defects and
manufacturing defects. See, e.g., Harduvel v. Gen. Dynamics Corp., 878 F.2d 1311, 1317 (11th
Cir. 1989) (“This distinction between ‘aberrational defects’ and defects occurring throughout an
entire line of products is frequently used in tort law to separate defects of manufacture from
those of design. . . . Stated another way, the distinction is between an unintended configuration,
and an intended configuration that may produce unintended and unwanted results.”); In re
Tempomandibular Joint Implants Liab. Litig., 97 F.3d 1050, 1056 (8th Cir. 1996) (concluding
that a manufacturer’s use of “what proved to be an unsuitable material” for jaw implants is
“clearly” a design defect for which the manufacturer should be liable); Restatement (Third) of
Torts § 2 (1998) (setting forth different standards of liability for manufacturing and design
defects).
16
The district court found that: (1) Sunseeker International Ltd. was the
manufacturer of the yacht and “[t]he failed hose barb was an original part of the
vessel installed by the manufacturer”; (2) the failed hose barb was made of yellow
brass; and (3) “[t]he use of yellow brass knowing its exposure to saltwater created
a condition likely to cause corrosion.” However, even if yellow brass was an
improper material choice, the district court concluded that (1) the Marine Policy
covered only “manufacturing defects” and (2) the use of yellow brass did not
constitute a manufacturing defect covered by the Marine Policy. As noted earlier,
the district court found that there was no evidence that something went wrong in
the manufacturing process or that “the hose barb deviated from its intended
design.”
On appeal, Lago Canyon acknowledges that a design defect is different from
a defect in the manufacturing process. Lago Canyon, however, points out that a
manufacturer may be liable for both design defects and defects in the
manufacturing process. Lago Canyon argues that the term “manufacturer’s
defect,” as used in the Marine Policy, means any defect attributable to the
manufacturer and is not limited in any way. Lago Canyon thus claims that the term
“manufacturer’s defect” includes both design and manufacturing defects. Lago
Canyon argues that the district court’s order jumped from “manufacturer’s defect”
to “manufacturing defect” and erred in equating “manufacturer’s defect,” as used
17
in the Marine Policy, with “manufacturing defect.”
We agree with Lago Canyon that the district court erred in construing the
term “manufacturer’s defect” in the Marine Policy. The Marine Policy does not
define the term “manufacturer’s defect.” Although there is a distinct difference
between a manufacturing defect and a design defect, manufacturers may be liable
for both types of defects. See Jennings v. BIC Corp., 181 F.3d 1250, 1255 (11th
Cir. 1999) (explaining that Florida has adopted the Restatement (Second) of Torts
§ 402(A), under which a manufacturer may be held liable for a design defect, a
manufacturing defect, or an inadequate warning). Thus, both are manufacturer’s
defects. St. Paul’s problem is that its Marine Policy uses the broad term
“manufacturer’s defect” and not “manufacturing defect” as focused on by the
district court. Attempting to give the term “manufacturer’s defect” its plain
meaning and mindful of the settled rule that ambiguous provisions in an insurance
policy are construed against the insurer, we conclude the term “manufacturer’s
defect” includes defects attributable to the manufacturer whether in the
manufacturer’s design or manufacturing of the product.19 Thus, the district court
19
Under both Florida law and federal maritime law, an ambiguous provision in a maritime
contract is interpreted against the drafter. See, e.g., Edward Leasing Corp., 785 F.2d at 889
(“The traditional rule of construction in admiralty cases is to construe the contract language most
strongly against the drafter . . . .”); Swire Pac. Holdings, Inc. v. Zurich Ins. Co., 845 So. 2d 161,
165 (Fla. 2003) (“An ambiguous provision is construed in favor of the insured and strictly
against the drafter.”). Because there is no conflict between state law and maritime law on this
issue, we need not engage in the balancing test for determining which law applies when a
conflict exists. See Steelmet, Inc. v. Caribe Towing Corp., 779 F.2d 1485, 1488 (11th Cir.
1986).
18
erred in its legal interpretation of that term.20
Because the district court interpreted the Marine Policy not to cover a
manufacturer’s design defect, the district court did not make findings as to other
issues in the case. For example, although the district court found that “[t]he use of
yellow brass knowing its exposure to saltwater created a condition likely to cause
corrosion,” it did not determine whether the use of yellow brass rose to the level of
a manufacturer’s design defect and, if so, what impact this had on the multiple
causation issues in the case and the court’s other fact findings. While the district
court found that “the proximate cause of the damage was the failure of a hose barb
which resulted from corrosion” and corrosion was excluded, the district court also
then found that “the loss is not covered by the [Marine] Policy unless a provable
manufacturer’s defect can be shown.” Because it concluded that a design defect
was not a “manufacturer’s defect,” the district court did not address further the
interplay between the manufacturer’s defect coverage and the corrosion exclusion
or what impact such a design defect had on its causation findings. Therefore,
because our ruling triggers the need for the district court to address other issues in
20
The parties do not cite, nor can we find, any case addressing the meaning of the term
“manufacturer’s defect” in a marine insurance policy or any other insurance policy for that
matter. Rather, Lago Canyon cites primarily Florida cases for the proposition that a
manufacturer can be held liable for both manufacturing and design defects in the manufacturer’s
product. St. Paul cites primarily Florida cases for the proposition that a defect in the
manufacturing process or a so-called “manufacturing defect” is different from a manufacturer’s
design defect. However, neither of those propositions address, much less resolve, the issue of
what is meant by the undefined term “manufacturer’s defect” in a marine insurance policy
drafted by the insurer. We say this to explain the paucity of case law in our analysis.
19
the first instance and because this is such a fact intensive case, we remand this case
to the district court for further bench trial proceedings consistent with this Court’s
ruling as to the “manufacturer’s defect” issue.21
B. Prejudgment Interest
Lastly, we turn to Lago Canyon’s contention that the district court erred in
not awarding Lago Canyon prejudgment interest.22 “As a general rule,
pre-judgment interest should be awarded in admiralty cases. Pre-judgment interest
is not a penalty, but compensation to the plaintiff for the use of funds that were
rightfully his.” Ins. Co. of N. Am. v. M/V Ocean Lynx, 901 F.2d 934, 942 (11th
Cir. 1990). A district court has discretion to deny prejudgment interest when there
are “peculiar circumstances” that make it inequitable for the losing party to pay
prejudgment interest. Self v. Great Lakes Dredge & Dock Co., 832 F.2d 1540,
1550 (11th Cir. 1987). “[I]n any admiralty case in which the trial court refuses to
award prejudgment interest, the best practice would be for it to detail the peculiar
circumstance it has found, and specifically indicate that it is denying prejudgment
interest as an exercise of the discretion created by the existence of peculiar
circumstances. In the absence of clear findings by the district court, an appellate
21
On appeal, Lago Canyon argues that, but for the design defect, the loss would not have
occurred. We expressly do not reach any of the factual or legal causation issues on appeal as we
need the district court to rule on the design defect issue first.
22
We review a district court’s decision not to award prejudgment interest for abuse of
discretion. See Ins. Co. of N. Am. v. M/V Ocean Lynx, 901 F.2d 934, 942 (11th Cir. 1990).
20
court could search the record for ‘peculiar circumstances’ and decide to award or
deny prejudgment interest without a remand.” Id. at 1550-51.
Here, we not only have no clear finding of “peculiar circumstances,” but also
no finding or mention at all of prejudgment interest. The district court’s order does
not deny or grant prejudgment interest. It says nothing about it. Thus, we remand
the issue of prejudgment interest to the district court to address in the first instance.
III. CONCLUSION
For the foregoing reasons, we affirm the district court’s rulings except as to
the issue of the “manufacturer’s defect” and prejudgment interest on the towing
charges. Because of the fact intensive nature of this case, we vacate the judgment
in favor of St. Paul and remand the case to the district court for further bench trial
proceedings as to the alleged “manufacturer’s defect” and prejudgment interest
issues. We do not mean the district court must hear all the evidence again, but only
that the parties should be able to supplement the record before the district court
rules on the remaining issues.
AFFIRMED, IN PART; VACATED AND REMANDED, IN PART.
21
WILSON, Circuit Judge, concurring:
I concur in the Court’s opinion but, as to section II, I have doubts about the
correctness of our prior precedent in Harrison v. Flota Mercante Grancolombiana,
S.A., 577 F.2d 968 (5th Cir. 1978).1 Relying on Harrison, the district court struck
Lago’s demand for a jury trial, reasoning that because “St. Paul elected to file this
claim pursuant to Rule 9(h) and Lago’s counter-claim arises out of the same
operative facts as St. Paul’s claims, both claims must be tried by [the district
court], not by a jury.” Accordingly, St. Paul was successfully able to defeat Lago’s
right to a jury trial by invoking Rule 9(h), and designating its declaratory judgment
action as one preceding in admiralty jurisdiction. But for Harrison, I believe that
the nature of a declaratory judgment action requires a different result with regard to
Lago’s demand for a jury trial on its breach of contract counterclaim.
We are bound by our prior panel precedent in Harrison. In Harrison,
Grover Harrison, a longshoreman, suffered injuries stemming from an incident
aboard a freighter when barrels containing an industrial chemical fell and leaked in
the hold and Harrison offered assistance as part of the clean-up crew. Harrison
sued Flota Mercante Grancolombiana, S.A. (“Flota Mercante”), the owner of the
vessel, alleging negligence and unseaworthiness. Harrison invoked admiralty
jurisdiction pursuant to Rule 9(h). Flota Mercante, in turn, impleaded Harrison’s
1
In Bonner v. City of Prichard, Alabama, 661 F.2d 1206, 1207 (11th Cir. 1981) (en
banc), the newly-formed Eleventh Circuit adopted as binding precedent all of the decisions of
the former Fifth Circuit handed down prior to the close of business on September 30, 1981.
22
employer, James J. Flanagan Stevedores (“Stevedores”), “alleging that the
unseaworthiness of the vessel, if any, was due to the employer’s negligence.”
Harrison, 577 F.2d at 973. Stevedores, in turn, filed a fourth-party complaint
against Rohm and Haas Company, the shipper of the industrial chemical, seeking
indemnification based on product liability and negligent failure to warn. Flota
Mercante, as the vessel owner, also filed a claim against Rohm and Haas.2
Following the lead of both the vessel owner and his employer, Harrison amended
his complaint to state a claim against Rohm and Haas, alleging product liability
and negligent failure to warn. Once again, Harrison invoked admiralty jurisdiction
pursuant to Rule 9(h).
The district court found against Rohm and Haas, only. Rohm and Haas
appealed, arguing, inter alia, that the district court deprived it of the right to trial
by jury. In support, Rohm and Haas asserted two arguments: (1) Stevedores’ third-
party complaint against it cited Rule 14(a), not Rule 14(c), as the basis for its
indemnity claim;3 and (2) the claims against it (negligence and product liability)
may fall within the district court’s diversity jurisdiction. Id. at 985-86. Therefore,
notwithstanding the plaintiff’s invocation of Rule 9(h), Rohm and Haas argued, it
was entitled to a trial by jury.
2
The Fifth Circuit did not specify the nature of Flota Mercante’s claim against Rohm and
Haas.
3
Rule 14(a) addresses third-party practice generally and Rule 14(c) addresses third-party
practice specifically in an admiralty or maritime claim. See FED . R. CIV . P. 14.
23
The Fifth Circuit disagreed, explaining that “by electing to proceed under
9(h) rather than by invoking diversity jurisdiction, the plaintiff may preclude the
defendant from invoking the right to trial by jury which may otherwise exist.” Id.
at 986. The Harrison Court found the plaintiff’s election under Rule 9(h)
“dispositive” as to whether Rohm and Haas was entitled to a jury trial. Id. at 986.
The Fifth Circuit then highlighted the fact that Harrison “elected to proceed against
both the vessel [Flota Mercante] and the shipper, Rohm and Haas, pursuant to Rule
9(h) of the Federal Rules of Civil Procedure, with the attendant right to a non-jury
trial.” Id. at 987. The Fifth Circuit found that the Stevedores’ invocation of Rule
14(a), as opposed to Rule 14(c), was “of no consequence” for three reasons. Id.
First, the court “refuse[d] to permit a third-party defendant [Stevedores] to
emasculate the election given to the plaintiff by Rule 9(h) by exercising the simple
expedient of bringing in a fourth-party defendant [Rohm and Haas].” Id. Second,
Harrison’s claims against Flota Mercante (first complaint) and Rohm and Haas
(fourth-party complaint) stem from the same set of operative facts. Id. Third,
Harrison amended his complaint to state a claim against Rohm and Haas and, in
doing so, invoked Rule 9(h). Id. In conclusion, because Harrison elected to pursue
an admiralty claim pursuant to Rule 9(h), the Fifth Circuit concluded that the
district court did not err in denying Rohm and Haas a jury trial.
Here, we conclude that “our prior precedent rule requires us to follow
24
Harrison.” Majority Op. at 14. See United States v. Vega-Castillo, 540 F.3d 1235,
1236 (11th Cir. 2008) (per curiam) (“Under the prior precedent rule, we are bound
to follow a prior binding precedent unless and until it is overruled by this court en
banc or by the Supreme Court.”) (citation and internal quotation marks omitted).
Specifically, we rely on the following passage: “by electing to proceed under Rule
9(h), rather than by invoking diversity jurisdiction, the plaintiff may preclude the
defendant from invoking the right to trial by jury which may otherwise exist.”
Majority Op. at 14 (citing Harrison, 577 F.2d at 986).
Although we are bound by the Fifth Circuit’s analysis, I believe that the
Fourth Circuit sets forth a more persuasive analysis. In In re Lockheed Martin
Corporation, 503 F.3d 351 (4th Cir. 2007), cert. denied, 128 S. Ct. 2080 (2008), a
case indistinguishable from this case on its facts, the Fourth Circuit addressed “the
right to a trial by jury in an admiralty case.” 503 F.3d at 352. There, Lockheed
Martin’s (“Lockheed”) ship suffered damages at sea and a dispute regarding
coverage arose between Lockheed and its insurer, National Casualty Company
(“National”). National filed a declaratory judgment action against Lockheed,
seeking a declaration that Lockheed’s claims were time barred.4 National
designated its claim as one in admiralty. Lockheed answered and filed a
counterclaim, seeking payments for the damages to the ship. Lockheed requested a
4
National later amended its complaint, alternatively seeking a declaration of Lockheed’s
amount of loss.
25
jury trial, which the district court subsequently struck. Lockheed petitioned the
Fourth Circuit for a writ of mandamus. The Fourth Circuit issued the writ and said
that “[a]n admiralty plaintiff who chooses to proceed ‘at law,’ . . . has the right
under the saving-to-suitors clause to demand a jury trial.” Id. at 355.5 Lockheed
presented two arguments: (1) because it asserted an in personam counterclaim
5
Section 1333 of Title 28, known as the savings-to-suitors clause, sets forth the basis for
admiralty jurisdiction: “[t]he district courts shall have original jurisdiction, exclusive of the
courts of the States, of: (1) [a]ny civil case of admiralty or maritime jurisdiction, saving to
suitors in all cases all other remedies to which they are otherwise entitled.” 28 U.S.C. § 1333(1).
Stated differently, the saving to suitors clause establishes the right of a party to choose whether
to proceed within a court’s admiralty jurisdiction or general civil jurisdiction when both
admiralty and non-admiralty federal jurisdiction exist. See Waring v. Clarke, 46 U.S. (5 How)
441, 461 (1847) (describing the “saving to suitors” clause to mean “that in cases of concurrent
jurisdiction in admiralty and common law, the jurisdiction in the latter is not taken away”);
Harrison, 577 F.2d at 986. The Sixth Circuit has explained distinctly the meaning of the
savings-to-suitors clause:
First, the claimant may invoke federal admiralty jurisdiction under
the grant of original subject matter jurisdiction over admiralty,
maritime, and prize cases set out in Section 1333. Neither diversity
of citizenship nor a minimum amount in controversy need be shown
under the statute. On the other hand, most plaintiffs have no right to
a trial by jury if they invoke the federal court’s general admiralty
jurisdiction. Second, by virtue of the ‘saving clause,’ plaintiff also
may sue at law in a state court or in a United States district court.
However, to pursue the latter choice, the requirements of diversity of
citizenship and jurisdictional amount must be satisfied.
In re: Chimenti, 79 F.3d 534, 537 (6th Cir. 1996) (citation omitted). The Supreme Court,
however, has limited the scope of the savings-to-suitors clause, drawing a distinction between an
in rem claim and an in personam claim: “[w]here the suit is in personam, it may be brought
either in admiralty or, under the saving clause, in an appropriate non-maritime court, by ordinary
civil action.” Atl. & Gulf Stevedores, Inc. v. Ellerman Lines, 369 U.S. 355, 360 (1962) (citation
and quotation marks omitted); see also Madruga v. Superior Court of State of Cal. in and for
San Diego County, 346 U.S. 556, 560-561 (1954) (interpreting the savings-to-suitors clause to
mean that the common law is “competent” to adjudicate cases proceeding in personam, where
the defendant is a person, but not proceedings in rem). As such, the savings-to-suitors clause
provides a plaintiff in a maritime case alleging an in personam claim with three options: (1) the
plaintiff may file suit in federal court under admiralty jurisdiction; (2) the plaintiff may file suit
in federal court under diversity jurisdiction; or (3) the plaintiff may file suit in state court.
26
against National meeting the requirements of diversity jurisdiction, “it has the right
under the saving-to-suitors clause to demand a jury trial on the counterclaim;” and
(2) it had the right to a jury trial under Beacon Theaters, Inc. v. Westover, 359 U.S.
500 (1959), “in which the Supreme Court held that the right to a jury trial in a
declaratory judgment action depends on whether there would have been a right to a
jury trial had the action proceeded without the declaratory judgment vehicle.”
Lockheed Martin, 503 F.3d at 355. The Fourth Circuit declined to consider the
merits of the first argument but agreed with Lockheed as to its second argument.6
Having determined that the Seventh Amendment applies to admiralty claims
tried “at law” by way of the savings-to-suitors clause, the Fourth Circuit
recognized that National decided to proceed in admiralty, not at law. Given the
nature of a declaratory judgment action, the Fourth Circuit found National’s
admiralty designation under Rule 9(h) not to be dispositive of the right to a jury
6
In fact, the Fourth Circuit explained that its holding did not rest on Lockheed’s
counterclaim, but on the procedural posture of that case as a declaratory judgment action:
We agree with National that permitting such counterclaims to
effectively undo the plaintiff’s Rule 9(h) designation would be
inconsistent with the historic admiralty practice of giving the plaintiff
the power to determine the manner in which his claims would be
tried. We need not decide, however, whether the counterclaims
asserted by Lockheed are ‘true’ counterclaims, nor need we decide
how a defendant’s jury demand would be resolved if his
counterclaims were not true counterclaims. We need not consider
these issues because we agree with Lockheed that Beacon Theatres
requires a jury trial in this case, even if no counterclaims had been
filed.
Lockheed Martin, 503 F.3d at 358 (emphasis added).
27
trial issue:
This case, like Beacon Theatres, involves a declaratory
judgment action commenced by the party that, but for the
existence of the declaratory judgment procedure, would
have been the defendant. Although the action sounds in
admiralty, that is only because National won the race to
the courthouse door and made the Rule 9(h) designation
first. Beacon Theatres, however, requires us to ignore
National’s status as the declaratory judgment plaintiff
and to instead look to how the action otherwise would
have proceeded. Without the declaratory judgment
vehicle, Lockheed would have sued National for breach
of the insurance policy, a claim over which admiralty and
“law” courts have concurrent jurisdiction. As the
plaintiff, Lockheed would have been entitled under the
saving-to-suitors clause to designate its claim as a legal
one as to which there is a Seventh Amendment right to
jury trial.
Id. at 359. The Fourth Circuit’s conclusion rested on two points: (1) “[i]n the usual
course of events-that is, without the declaratory judgment vehicle-Lockheed would
have sued National for breach of the insurance contract;” and (2) “under the
saving-to-suitors clause, Lockheed would have been entitled to a jury trial on that
claim.” Id. at 359-60. Accordingly, “Lockheed cannot lose its right to a jury trial
simply because National initiated the declaratory judgment action.” Id. at 360.
This case stands on all fours with Lockheed Martin. The facts are
indistinguishable: insurer sues insured for declaratory judgment that insurance
policy does not provide coverage; insurer invokes Rule 9(h); and, insured files a
counterclaim for breach of insurance contract, pleads diversity jurisdiction, and
28
demands a jury trial. Similarly to Lockheed Martin, two points lead me to
conclude that Lago was entitled to a jury trial on its breach of contract claim: (1)
Lago would have been entitled to a jury trial on its breach of contract counterclaim
pursuant to the “saving to suitors” clause; and (2) the unique nature of a
declaratory judgment action.
Generally speaking, the Seventh Amendment does not extend the right to a
jury trial to cases in admiralty. See Waring, 46 U.S. at 460. Yet, “[w]hile [the
Supreme] Court has held that the Seventh Amendment does not require jury trials
in admiralty cases, neither that amendment nor any other provision of the
Constitution forbids them. Nor does any statute of Congress, or Rule of Procedure,
civil or admiralty, forbid jury trials in maritime cases.” Fitzgerald, 374 U.S. at 20.
Under Supreme Court precedent, moreover, the Seventh Amendment right to a trial
by jury may apply in admiralty cases tried at law by way of the savings-to-suitors
clause. In Ellerman Lines, Leighton Beard, a longshoreman employed by Atlantic
and Gulf Stevedores (“Atlantic”), suffered injuries while unloading bales of burlap
from a vessel owned by Ellerman Lines, Ltd. (“Ellerman”), who had hired Atlantic
to perform stevedoring services. 369 U.S. at 359-60. Beard sued Ellerman in
United States District Court for the Eastern District of Pennsylvania based on
diversity jurisdiction, alleging unseaworthiness of the vessel and negligence.
Beard designated the action as one at law and demanded a jury trial. Ellerman, in
29
turn, impleaded Atlantic as Beard’s employer, alleging negligence based on its
“manner and method of unloading” and seeking indemnification in the event it
were held liable to Beard. Based on the jury’s answers to special interrogatories,
the district court entered judgment in favor of Beard against Ellerman and in favor
of Atlantic on Ellerman’s indemnity claim. The United States Court of Appeals for
the Third Circuit affirmed the judgment in favor of Beard but reversed the
judgment in favor of Atlantic. Finding a violation of the Seventh Amendment’s
prohibition against the reexamination of facts by a court,7 the Supreme Court
reversed, reasoning that “neither we nor the Court of Appeals can redetermine facts
found by the jury any more than the District Court can predetermine them.” Id. at
358-59. The Supreme Court began its analysis by noting the application of the
Seventh Amendment to that case: “[t]he requirements of the Seventh Amendment
were brought into play in this case, even though a stevedoring contract is a
maritime contract.” Id. at 359. Of particular relevance here, the Supreme Court
explained that “[t]his suit being in the federal courts by reason of diversity of
citizenship carried with it, of course, the right to trial by jury.” Id. at 360.
Ellerman Lines affirms the principle that the Seventh Amendment may
apply to admiralty cases tried at law by way of the savings-to-suitors clause. See
Lockheed Martin, 503 F.3d at 356 (“In our view, Ellerman makes it clear that the
7
The Seventh Amendment provides, in pertinent part, that “no fact tried by a jury, shall
be otherwise reexamined in any Court of the United States, than according to the rules of
common law.” U.S. Const. amend. VII.
30
Seventh Amendment applies to admiralty claims that are tried ‘at law’ by way of
the saving-to-suitors clause.”); Ghotra by Ghotra v. Bandila Shipping, Inc., 113
F.3d 1050, 1054 (9th Cir. 1997) (“The difference between [proceeding in admiralty
or at law in state or federal court] is mostly procedural; of greatest significance is
that there is no right to jury trial if general admiralty jurisdiction is invoked, while
it is preserved for claims based in diversity or brought in state court.”); Koch
Fuels, Inc. v. Cargo of 13,000 Barrels of No. 2 Oil, 704 F.2d 1038, 1041 (8th Cir.
1983) (“An admiralty claim that is also cognizable as a civil claim, however, may
be brought as an ordinary civil action. In these cases, the right to trial by jury
attaches.”); In the Matter of Complaint of McAllister Towing of Va., Inc., 999 F.
Supp. 797, 799 (E.D. Va. 1998) (“One of the remedies saved to suitors is the right
to a trial by jury.”).
Ellerman Lines, therefore, belies St. Paul’s argument that the Seventh
Amendment does not apply to admiralty cases. As the Fourth Circuit in Lockheed
Martin put it, such a contention is an “oversimplification:” “[w]hile the Seventh
Amendment is not applicable to an admiralty claim, it can be applicable to certain
claims – those over which the ‘law’ court has concurrent jurisdiction.” Lockheed
Martin, 503 F.3d at 359. In addition, the Supreme Court has even endorsed
allowing traditional non-jury admiralty claims to be tried by a jury. See Fitzgerald
v. U.S. Lines Co., 374 U.S. 16, 21 (1963) (holding “that a maintenance and cure
31
claim joined with a Jones Act claim [that, by statute, carries the right to a jury trial]
must be submitted to the jury when both arise out of one set of facts”).
Assuming the presence of diversity jurisdiction,8 the Seventh Amendment
may apply to Lago’s counterclaim for breach of the maritime insurance contract.
See Ellerman Lines, 369 U.S. at 359-60 (providing that “a suit for breach of a
maritime contract, while it may be brought in admiralty, may also be pursued in an
ordinary civil action, since . . . it is a suit in personam”) (footnote and internal
citation omitted).
Although St. Paul elected to proceed in admiralty, rather than at law, I do not
believe that a plaintiff’s election to proceed in admiralty pursuant to Rule 9(h) in a
declaratory judgment action trumps the Seventh Amendment’s guarantee of the
right to a trial by jury where it would otherwise apply. Rather, the Supreme Court
instructs that a declaratory judgment action cannot defeat the Seventh
Amendment’s guarantee to a jury trial on a “legal” counterclaim because the
counterclaim represents the real controversy.
In Beacon Theaters, the Supreme Court addressed the right to a jury trial
when a claim for declaratory relief is a part of the equation. After Beacon
Theaters, Inc. (“Beacon”) notified Fox West Coast Theaters (“Fox”) that it
believed Fox had violated federal antitrust laws, Fox filed a declaratory judgment
8
Lago pled diversity jurisdiction in its counterclaim.
32
action, seeking a declaration that it had not violated the Sherman Antitrust Act.
Beacon filed a counterclaim, alleging antitrust violations and seeking treble
damages. Beacon also demanded a jury trial. The district court viewed Fox’s
claims as equitable and ordered that its claims be tried in a bench trial before a jury
considered Beacon’s counterclaim. Unsatisfied with that decision, Beacon sought
a writ of mandamus from the United States Court of Appeals for the Ninth Circuit.
The Ninth Circuit refused to issue the writ and Beacon appealed to the Supreme
Court. The Supreme Court issued the writ, reasoning that the declaratory judgment
statute
while allowing prospective defendants to sue to establish
their nonliability, specifically preserves the right to jury
trial for both parties. It follows that if Beacon would
have been entitled to a jury trial in a treble damage suit
against Fox it cannot be deprived of that right merely
because Fox took advantage of the availability of
declaratory relief to sue Beacon first. Since the right to
trial by jury applies to treble damage suits under the
antitrust laws, and is, in fact, an essential part of the
congressional plan for making competition rather than
monopoly the rule of trade, the Sherman and Clayton Act
issues on which Fox sought a declaration were essentially
jury questions.
Beacon Theatres, 359 U.S. at 504 (footnote and internal citation omitted). In other
words, the right to a jury trial in a declaratory judgment action depends on whether
there would have been a right to a jury trial had the action proceeded without the
declaratory judgment vehicle. See also Gulfstream Aerospace Corp. v.
33
Mayacamas Corp., 485 U.S. 271, 284 (1988) (“Actions for declaratory judgments
are neither legal nor equitable, and courts have therefore had to look to the kind of
action that would have been brought had Congress not provided the declaratory
judgment remedy.”).
St. Paul argues that Beacon Theaters does not apply here for two reasons:
(1) it did not address the “interplay” of an admiralty claim and the Seventh
Amendment, and (2) the Supreme Court decided it before the unification of civil
and admiralty procedure in 1966. I find both reasons unavailing. Like Beacon
Theaters, this case involves a “legal” claim (Lago’s breach of contract) to which
the Seventh Amendment applies just as the Seventh Amendment applied to
Beacon’s claim for treble damages under the Sherman Act. In addition, the Ninth
Circuit found Beacon Theaters applicable in a similar scenario, holding that a
plaintiff’s election to proceed in admiralty does not deprive another party of a jury
trial on a properly joined claim. See Wilmington Trust v. United States District
Court for the District of Hawaii, 934 F.2d 1026, 1032 (9th Cir. 1991); see id. at
1031 (noting that the Supreme Court in Beacon Theaters “held that the right to a
jury trial as provided by the seventh amendment overcomes another party’s
preference for a bench trial when those interests conflict”).9 Second, as to St.
9
Other courts have also applied the reasoning of Beacon Theaters to address the right to
a jury trial in an admiralty case. See The Continental Ins. Co. v. Indus. Terminal & Salvage Co.,
No. 05CV1142, 2005 WL 2647950, at *1-2 (W.D. Pa. Oct. 17, 2005) (relying on Beacon
Theaters and denying insurer’s motion to strike insured’s jury trial demand in a declaratory
judgment action under admiralty jurisdiction); Canal Barge Co. v. Commonwealth Edison Co.,
34
Paul’s unification argument, “[t]he merger of civil and admiralty procedure in
1966 . . . made no change in the complicated pattern of when a right to jury trial
exists.” 9 Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure
§ 2315 (2008).
As this Circuit has noted, in the context of a declaratory judgment action,
“the normal position of the parties is reversed.” Hudson Ins. Co. v. Am. Elec.
Corp., 957 F.2d 826, 828 (11th Cir. 1992); Stuart Weitzman, LLC v.
Microcomputer Res., Inc., 542 F.3d 859, 862 (11th Cir. 2008). In that sense, Lago
is the real plaintiff-in-interest and St. Paul is the real defendant-in-interest.
Moreover, our precedent teaches that the complaint for declaratory relief does not
control the case, at least for purposes of determining the presence of a federal
question. In Hudson, we looked not to the face of the complaint but to the cause of
action anticipated by the declaratory judgment plaintiff: “[w]here the complaint in
an action for declaratory judgment seeks in essence to assert a defense to an
impending or threatened state court action, it is the character of the threatened
action, and not of the defense, which will determine whether there is
federal-question jurisdiction in the District Court.” Hudson Ins., 957 F.2d at 828
No. 98 C 0509, 2002 WL 206054, at * (N.D. Ill. Feb. 11, 2002) (finding Beacon Theaters
“persuasive” and noting that “[t]he same reasoning [employed in Beacon Theaters] applies when
parties join non-admiralty claims to which a right to a jury trial attaches with admiralty claims”);
Sphere Drake Ins. PLC v. J. Shree Corp., 184 F.R.D. 258, 261 (S.D.N.Y. 1999) (finding Beacon
Theaters “persuasive and compelling” and denying an insurer’s motion to strike insured’s jury
trial demand in a declaratory judgment action under admiralty jurisdiction).
35
(quoting Public Serv. Comm’n v. Wycoff Co., 344 U.S. 237, 248 (1952)); see also
Stuart Weitzman, LLC v. Microcomputer Res., Inc., 542 F.3d 859, 862 (11th Cir.
2008) (providing that the inquiry into the presence of a federal question turns on
“whether, absent the availability of declaratory relief, the instant case could
nonetheless have been brought in federal court. To do this, we must analyze the
assumed coercive action by the declaratory judgment defendant”). Likewise here,
Lago’s counterclaim for breach of contract represents the actual matter in
controversy. We even acknowledge as much in the majority opinion, referring to
Lago’s counterclaim for breach of contract as the “flip side” of St. Paul’s
declaratory judgment complaint. Majority Op. at 6. Consequently, the fact that
Lago filed a counterclaim to protect its right to a jury trial is essentially irrelevant.
See Lockheed Martin, 503 F.3d at 358.
In Beacon Theaters, a defendant’s right to a jury trial on a “legal”
counterclaim was upheld, even though the plaintiff sought declaratory relief in
equity, traditionally a non-jury case. Similarly here, Lago should be entitled to a
jury trial on its “legal” counterclaim for breach of contract even though St. Paul
sought declaratory judgment and invoked admiralty jurisdiction, again,
traditionally a non-jury case. Given the nature of a declaratory judgment action as
a reversed lawsuit, Lago should not be deprived of the right to a jury trial because
St. Paul “took advantage of the availability of declaratory relief to sue [Lago]
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first.” Beacon Theaters, 359 U.S. at 504.
Taking into consideration the savings-to-suitors clause and the nature of a
declaratory judgment action Lago is entitled to a jury trial in this case. First, by
way of the savings-to-suitors clause, the Seventh Amendment may apply to claims
triable at law, such as Lago’s breach of contract counterclaim. Second, Beacon
Theatres instructs us to consider how the cause of action would have proceeded in
the absence of the declaratory judgment vehicle. Therefore, Lago would have been
entitled to designate his breach of contract counterclaim as “legal,” affording Lago
the protection of the Seventh Amendment and the right to a trial by jury.
“Trial by jury is a vital and cherished right, integral in our judicial system.”
City of Morgantown, W. Va. v. Royal Ins. Co., 337 U.S. 254, 258 (1949). Thomas
Jefferson described “trial by jury as the only anchor ever yet imagined by man, by
which a government can be held to the principles of its Constitution.” 3 The
Writings of Thomas Jefferson 71 (Washington Ed. 1861). Under our current
precedent, the guarantee of this “vital and cherished right” in an admiralty case
where a counterclaim may be tried “at law” hinges on whether the insurer files a
declaratory judgment action before the insured files his or her claim for breach of
contract. The “anchor” in our Constitution demands more exacting scrutiny than a
race to the courthouse doors.
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