Persson v. Scotia Prince Cruises, Ltd.

United States Court of Appeals
For the First Circuit
Nos. 02-1590
02-1591

KENTH PERSSON and HARTMUT RATHJE,
Plaintiffs, Appellants/Cross-Appellees,

and

ROLF SJÖSTRÖM,
Plaintiff, Cross-Appellee,

v.

SCOTIA PRINCE CRUISES, LTD.
f/n/a PRINCE OF FUNDY CRUISES, LTD.,
Defendant, Appellee/Cross-Appellant.

APPEALS FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MAINE

[Hon. David M. Cohen, U.S. Magistrate Judge]

Before

Torruella, Lynch and Howard,
Circuit Judges.

Michael X. Savasuk, on brief, for plaintiffs/appellants/cross-
appellees.
Leonard W. Langer, with whom Marshall J. Tinkle and Tompkins,
Clough, Hirshon & Langer, P.A., were on brief, for
defendant/appellee/cross-appellant.

May 27, 2003
 TORRUELLA, Circuit Judge. Hartmut Rathje, Kenth Persson,

and Rolf Sjöström, (collectively, the "Officers") were the captain,

chief engineer, and chief engineer/consulting superintendent,

respectively, of the M/S SCOTIA PRINCE. The SCOTIA PRINCE is a

cargo and passenger ferry operated by Scotia Prince Cruises, Ltd.

("SPC") between Portland, Maine and Yarmouth, Nova Scotia.

Claiming they were fired in April 2001, the Officers brought suit

under the federal court’s admiralty jurisdiction against SPC for

breach of their employment contracts. SPC raised as a defense that

the Officers had resigned and counterclaimed, alleging that the

Officers had breached a fiduciary duty by failing to maintain the

vessel.

A bench trial was held by consent before a magistrate

judge, who held that (a) Rathje and Persson resigned without giving

prior notice pursuant to their employment contracts and therefore

were not entitled to wages following their departure from the

vessel; (b) SPC terminated Sjöström's employment as consulting

superintendent (though not as chief engineer) without permitting

him to work his "notice period" of nine months and therefore owed

Sjöström nine months of superintendent pay; and (c) the Officers

were not liable to SPC for any negligent maintenance of the vessel.

All issues are appealed: Rathje and Persson appeal the decision

that they are not entitled to wages and vacation pay; SPC appeals

the decision that it is liable to Sjöström for damages and that its

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former employees are not liable for damage to the ship. After

reviewing the record, we affirm.

I. Background Facts

We recount only the facts relevant to our decision; a

more complete description of the facts can be found in the district

court's opinion. See Rathje v. Scotia Prince Cruises, Ltd., No.

01-123-P-DMC, 2002 U.S. Dist. LEXIS 4078, at *5-38 (D. Me. Mar. 13,

2002).

The Officers began working aboard the M/S SCOTIA PRINCE

in the late 1980s. Each Officer had an employment contract with

Prince of Fundy Cruises, Ltd. ("POF"), SPC's predecessor. Notice

time for termination under Rathje's employment contract was three

months; under Persson's contract, sixty days notice was required.

Sjöström's contract stated: "[Nine] months notice of termination

required by both parties." Sjöström worked in Sweden; POF

contracted first with the Swedish company Marine Trading and then

with Plus 2 Ferryconsultation AB ("Plus 2") to pay Sjöström's

salary in Swedish kronas.

At the beginning of the 2001 season, SPC's Chairman,

Matthew Hudson, met with the Officers and advised them that he was

contemplating the engagement of International Shipping Partners,

Inc. ("ISP"), a manning/purchasing contractor. Although several

top managers had been fired, Hudson assured the Officers that this

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would not affect their contracts, which were "ring-fenced."1

Hudson also stated that the employees who had been terminated would

receive a severance package of one week's pay for each year of

service with the company.

Hudson engaged ISP the next morning, April 5, 2001, to

take over the complete management of the vessel. ISP met with the

Officers and presented a budget showing Rathje and Persson to be

receiving significantly less compensation than provided in their

current contracts, and Sjöström to be receiving no compensation at

all as superintendent (because ISP assumed those duties). The

Officers were upset, and the meeting ended with the Officers

telling ISP, "Basically it's either you or us."

Over the course of the next few days, several email

messages and facsimiles were sent between the Officers and Hudson.

In their first message, the Officers wrote:

As it stand[s] now, we see only two options.
We stick to the agreement you presented last
night, i.e. ISP serves as a manning agency
only and the current contracts and conditions
are maintained, possible new conditions only
applying to new hires. Alternatively, if ISP
takes over both complete manning and technical
management, we ([Rathje and Persson]) accept
the standard severance package (one week for
every year of service) and [Sjöström] gives
the 9-month notice in accordance with his
contract.

1
The parties understood this to mean that the contracts were
locked-in and would not be altered.

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 When Hudson responded that their contracts were "ring-

fenced," the Officers asked Hudson to focus on the statement

beginning "As it stands now . . . " so they could "concentrate on

[their] jobs or go home." In response, Hudson stated, "I consider

that the [Officers] have effectively resigned and I accept those

resignations on behalf of [SPC]."

The Officers' last day was April 20; Rathje and Persson

acknowledge payment in full up to that date and Sjöström

acknowledges payment in full to April 30. They filed this lawsuit

seeking payment for the termination periods provided for in their

contracts.

After the Officers were replaced, SPC discovered various

problems with the upkeep of the ship including damage to the wood.

SPC alleged that the Officers were responsible, and cross-claimed

for more than one million dollars. The bench trial was held on

February 11-15, 2002, and a decision was issued on March 13, 2002.

This appeal followed.

II. Standard of Review

We review the district court's legal conclusions de novo.

Watson v. Deaconess Waltham Hosp., 298 F.3d 102, 108 (1st Cir.

2002). We review factual determinations for clear error. Fed. R.

Civ. P. 52(a) (2003). Our job is to determine whether the decision

below is reasonable in light of the entire record. See Portland

Natural Gas Transmission Sys. v. 19.2 Acres of Land, 318 F.3d 279,

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281 (1st Cir. 2003). We give great respect to the district court's

"opportunity to hear the testimony, observe the witnesses'

demeanor, and evaluate the facts at first hand," United States v.

Nee, 261 F.3d 79, 84 (1st Cir. 2001) (internal quotation omitted),

and defer to the trial court's findings unless "we form a strong,

unyielding belief that a mistake has been made." Windsor Mount Joy

Mut. Ins. Co. v. Giragosian, 57 F.3d 50, 53 (1st Cir. 1995)

(internal quotation omitted). Even then, we may affirm the

judgment on any grounds revealed by the record. United States v.

Puerto Rico, 287 F.3d 212, 218 (1st Cir. 2002).

III. Discussion

We have jurisdiction over this dispute, which arises out

of employment contracts aboard a vessel. See U.S. Const. Art. III,

§ 2; 28 U.S.C. § 1333(2003); 7A J.W. Moore, Moore's Federal

Practice § 0.225, at 2701, § 0.230, at 2783 (2d ed. 1996)

(hereinafter Moore's Federal Practice). The Federal Rules of Civil

Procedure apply to admiralty cases. Fed. R. Civ. P. 1 (2003). The

substantive matter is governed, in hierarchical order, by federal

statutes and treaties, general maritime law developed by the

Supreme Court, state statutes, and finally common law decisions of

the state courts. 1A Moore's Federal Practice § 0.326, at 3233-35.

"State law may supplement maritime law where maritime law is silent

. . ., but state law may not be applied where it is materially

different than maritime law, or where it would defeat the

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reasonably settled expectations of maritime actors." Windsor Mount

Joy Mut. Ins. Co. v. Giragosian, 57 F.3d 50, 54 (1st Cir. 1995).

A. Rathje and Persson

Rathje and Persson appeal from the district court's

determination that they resigned and were therefore not entitled to

termination pay under their employment contracts. They attack

several findings of fact made by the district court, asserting that

it was clear error for the court to find that neither Officer (1)

could have reasonably believed he was being terminated, (2) could

have reasonably believed that he was entitled to severance pay that

was not mentioned in his contract, (3) could have reasonably

believed that he was relieved from his obligation to give notice to

SPC before quitting, and (4) was entitled to termination pay. We

find that the district court's findings are not clearly erroneous.

First, the record shows that Rathje and Persson wrote to

Hudson, acknowledging that they were "fenced-in and protected,

meaning that nobody could touch our contracts." Their claim that

Hudson effectively terminated them by contracting with ISP (whose

numbers showed their pay reduced by thirty percent) thus fails

because the Officers understood that their contracts were

unalterable. The Officers never sought clarification from Hudson,

the chairman, about ISP's new role, and Hudson never told the

Officers anything to suggest that their contracts were not

protected.

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 As evidence of their mindset at the time and support for

their belief that they, too, were being terminated, Rathje and

Persson point to the fact that several other long-time employees

were fired by Hudson. This is not persuasive, however, because

none of the other employees were fired by email message, and Hudson

had reassured Rathje and Persson both orally and in writing that

their contracts were secure. The record shows that the Officers

were treated differently than other employees. It was therefore

not clearly erroneous for the district court to find that Rathje

and Persson could not reasonably believe that they were implicitly

terminated by email message.

Second, while Hudson mentioned to Rathje and Persson that

it would be good for them to "know about" a severance plan for

employees, he did not specifically state that it applied to them.

Each officer had a written contract stating "I cannot claim any

additional benefits or wages of any kind (except) those which have

been provided in this contract." It was therefore not clear error

for the district court to find that Rathje and Persson could not

have reasonably believed that they were entitled to a newly-

introduced extrinsic severance package.

Third, it was not clear error for the district court to

find that Rathje and Persson's belief that they did not have to

give notice because Hudson offered to pay them "ex gratia" was

irrelevant to the breach of employment contract. The court found

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that any offer by Hudson (discussed in greater detail in Part

(III)(C), below) was made after the Officers resigned; therefore,

it was too late for Rathje or Persson to give notice in order to

comply with his employment contract. It is irrelevant whether the

Officers no longer believed they had to give notice -- they were no

longer entitled to give notice.

Finally, it was not clearly erroneous for the court to

determine that Rathje and Persson were not entitled to termination

pay because they were unwilling to work their notice period. The

record shows that Rathje and Persson presented an ultimatum to

Hudson -- that he either cancel his (binding) contract with ISP or

the Officers would leave the ship. It was plausible for the court

to find that Rathje and Persson were threatening to quit

immediately and not simply giving notice of their resignations.

To summarize, we affirm the district court's factual

determinations that Rathje and Persson resigned without giving

notice and are therefore not entitled to damages because the

findings are plausible in light of the evidence.2 CEH, Inc. v. F/V

Seafarer, 70 F.3d 694, 698 (1st Cir. 1995).

2
Because we affirm the district court's determination that
Persson is not entitled to damages, we need not decide whether he
is a seaman entitled to double wages. See 46 U.S.C. § 10313(g)
(2003).

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 B. Sjöström

SPC challenges the district court's ruling that it is

liable to Sjöström for nine months termination pay in his position

as consulting superintendent. The district court found that

Sjöström's position as consulting superintendent was eliminated as

soon as Hudson contracted with ISP, thereby prohibiting Sjöström

from working his notice period.

SPC first claims that Sjöström was not its employee but

was employed by Plus 2. Testimony supports the district court's

determination that, while Plus 2 handled the administrative aspects

of Sjöström's employment via a contract with SPC (to the benefit of

both Sjöström and SPC), the terms of Sjöström's employment

continued to be dictated by his original contract with SPC's

predecessor, which was renewed annually by the course of dealing of

the parties. Sjöström was not a party to the contract between Plus

2 and SPC, and that contract did not supersede his employment

contract with POF (which was later assumed by SPC). We find

nothing clearly erroneous in the finding that Sjöström was an

employee of SPC.

SPC also asserts that it was entitled to fire Sjöström

because he had disregarded orders to cease making purchases through

Marine Trading. While SPC did argue that Sjöström had breached his

contract by negligently maintaining the SCOTIA PRINCE, it never

before argued that Sjöström was in breach by dealing with Marine

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Trading. This argument was not raised below and is therefore

waived. Brigham v. Sun Life of Can., 317 F.3d 72, 85 (1st Cir.

2003).

Finally, SPC claims that its damages should be reduced

because Sjöström made no effort to mitigate his damages. The

contract provided and the district court found that "Sjöström's

right either to be permitted to work his notice period or to

receive compensation in lieu thereof was absolute." Rathje, 2002

U.S. Dist. LEXIS 4078, at * 43. Sjöström therefore did not have a

duty to mitigate damages.

C. Officers' Alternative Theory

The Officers assert that even if they resigned, they

entered into a later contract with Hudson. In an email message to

the Officers, after Hudson writes that he considers the Officers

resigned, he writes:

As [the Officers] have resigned there seems to
be no requirement to pay termination. On the
other hand I believe the [Rathje] and
[Persson] contracts would normally provide for
termination of two or three months if the
Company had terminated their employment. I am
prepared to pay this sum to each on an ex
gratia basis, given a proper and fully
cooperative handover to the satisfaction of
ISP during the next 14 days.

(Emphasis added.) Asked for clarification by the Officers, Hudson

reiterated his offer in another email message, also noting that

Sjöström was entitled to termination pay in his capacity as chief

engineer.

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 The Officers claim that they worked through April 20,

satisfying their obligation under the new contract, but did not

receive any pay for their termination periods. Thus, they assert

that SPC is in breach and liable for damages.

The Officers contend that the court improperly excluded

evidence of this new contract as an inadmissible offer of

settlement. They maintain that the district court should have read

their complaint broadly to incorporate two claims - one for breach

of employment contract, and one for a separate contract formed

after employment had ceased. SPC argues that the district court

did consider both arguments, and implicitly found that no new

contract was formed.

1. Were two claims litigated?

Upon review of the record, we find that the district

court did not consider the issue of whether or not a separate

contract was formed between SPC and the Officers. At trial, the

court stated that it was "clear that this is a claim of breach of

an employment contract." The district court admitted the above

email messages only "for the purpose of completeness of the story

of the parties' ongoing dealings rather than as proof of SPC's

liability for, or the invalidity of, a claim or its amount."

Rathje, 2002 U.S. Dist. LEXIS 4078, at *24, n.13, *26, n.15, *27,

n.16.

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 In its findings of fact, the court stated only that

"[n]egotiations between Hudson and the Plaintiffs concerning his

offered 'ex gratia' payments broke down." Id. at *27. In its

conclusions of law, the court considered Hudson's email messages

offering termination pay only for their potential effect on a

breach of employment claim by the Officers -- and found that there

was no effect because the employment had already ceased when the

statements were made. Id. at *45-46. It is therefore clear that

the court read the complaint only to incorporate a breach of

employment claim, and not to also include a breach of a separate

contract between the parties.

2. Was it error to exclude the alternative theory?

We now consider whether it was error for the district

court to exclude the claim. A complaint must include "a short and

plain statement of the claim showing that the pleader is entitled

to relief" and "a demand for judgment for the relief the pleader

seeks." Fed. R. Civ. P. 8(a). This simplified pleading standard

must "give the defendant fair notice of what the plaintiff's claim

is and the grounds upon which it rests." Conley v. Gibson, 355

U.S. 41, 47 (1957). A breach of contract complaint must allege (1)

the existence of a valid and binding contract; (2) that plaintiff

has complied with the contract and performed his own obligations

under it; and (3) breach of the contract causing damages. 5 Wright

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& Miller, Federal Practice and Procedure § 1235, at 268-70 (2d ed.

2002).

The Officers claim that the following language identifies

a claim for breach of a separate contract:

[T]he plaintiffs conferred by facsimile and/or
emails on several occasions resulting in the
wrongful termination of plaintiffs. In any
event, defendants agreed that plaintiff's last
day of work would be April 20, 2001 and that
they would be paid their wages, vacation days
and time off in accordance with their
contracts for that period of time that there
was to be a notice of termination as stated in
their contracts.

(Emphasis added.)

While the Officers' complaint clearly establishes a

breach of employment contract claim, it fails to set forth the

basic elements to show that a separate contract was formed by the

parties after conclusion of the employment relationship. The

complaint states that "defendants agreed" that plaintiffs would

work two weeks and be paid their notice of termination period but

does not explain how this agreement arose, whether it was a binding

contract, whether plaintiffs performed under the contract, and

whether defendants breached the contract. It therefore is

insufficient to establish a claim for breach of a subsequent

contract. The district court properly read the complaint to only

include a breach of employment contract claim.

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 D. Maintenance Cross-Appeal

Finally, SPC appeals the decision that the Officers were

not liable for negligent maintenance of the vessel. There was

conflicting testimony about the extent or existence of damage to

the vessel, and the court found only that SPC may incur additional

cost as a result of negligent maintenance of the wood railings,

doors, and deck. There is nothing to suggest that the district

court's findings as to upkeep were clearly erroneous.

It is unclear whether SPC attempts to make a breach of

employment contract claim, a fiduciary duty claim, or a negligence

claim, but it is irrelevant because each claim is meritless.

Nothing in the Officers' employment contracts mentions upkeep of

the vessel, no testimony suggested that the Officers were required

to maintain the vessel, and the record is absent of any discussion

by the parties regarding any such duty. The breach of employment

contract therefore fails.

Both a breach of fiduciary duty and negligence claim are

predicated upon a duty owed by the Officers to the ship owner.

Here, however, SPC claims only to be the operator of the SCOTIA

PRINCE. It introduced no evidence to show that it owned the vessel

and, in fact, the record shows the owner to be Transworld Steamship

Company (Panama), Inc. Even if SPC were somehow analogous to an

owner, SPC's claim for negligent maintenance would fail. While a

seaman has a duty to perform the duties of his position with

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diligence, faithfulness, and reasonable skill, see generally 2

Norton, The Law of Seaman § 25.16 (4th ed. 1985), SPC has not shown

that any of the Officers were responsible for maintaining the

woodwork on the vessel. There is no authority in the lengthy

history of admiralty cases to support the position that, on these

facts, the Officers can be held liable (under a fiduciary or

negligence theory) to the owner of the vessel for non-intentional

negligent maintenance, and we refuse to establish such

jurisprudence here.

IV. Conclusion

The decision of the district court is affirmed. No costs

are awarded to either side.

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