Odeco Oil and Gas Co v. Bonnette

                 United States Court of Appeals,

                          Fifth Circuit.

                           No. 95-30041.

 ODECO OIL AND GAS COMPANY, DRILLING DIVISION and Odeco Drilling
Services, Inc., Plaintiffs-Appellants,

                                v.

         David J. BONNETTE, et al., Defendants-Appellees,

  Shell Oil Company and Shell Offshore Inc., Movants-Appellees.

                          Feb. 14, 1996.

Appeal from the United States District Court for the Eastern
District of Louisiana.

Before WIENER, EMILIO M. GARZA and BENAVIDES, Circuit Judges.

     EMILIO M. GARZA, Circuit Judge:

     Odeco Oil & Gas Company and Odeco Drilling Services, Inc.

(collectively "Odeco") appeal the district court's order partially

lifting its stay of a tort action in Texas state court in which

Odeco is a defendant.   We vacate and remand.

                                 I

     While conducting safety drills on a fixed platform in the Gulf

of Mexico, five Odeco employees were injured when an escape capsule

free-fell ninety feet, and crashed into the ocean.1         Fearing

litigation, Odeco filed a declaratory judgment action in federal

court and sought to limit its liability pursuant to the Limited

Liability Act, 46 U.S.C.App. § 183 et seq. ("Limitation Act"). The

     1
      The facts and procedural history of this case are more
fully developed in a prior opinion. See Odeco Oil & Gas Co.,
Drilling Division v. Bonnette, 4 F.3d 401 (5th Cir.1993) ("Odeco
I"), cert. denied, --- U.S. ----, 114 S.Ct. 1370, 128 L.Ed.2d 47
(1994).

                                 1
district court stayed all litigation against Odeco arising out of

the incident in order to determine Odeco's right to limitation.

     Four of the injured parties ("injured claimants") then filed

suit in Texas state court, and filed a motion in federal district

court to lift the stay preventing them from suing Odeco in state

court.    In accordance with principles of maritime law, the injured

claimants stipulated to Odeco's right to limit its liability in

federal court.    The district court granted the injured claimants'

motion to lift the stay, and dismissed Odeco's declaratory judgment

action.      On   appeal,   we   affirmed   the   dismissal   of   Odeco's

declaratory judgment action, but vacated the district court's

lifting of the stay.    We were concerned that potential claims for

contribution and indemnity in the state court proceeding could,

without proper stipulations, frustrate Odeco's right to limit its

liability.    We remanded the case to the district court to consider

the effects of any potential claims for contribution and indemnity

on Odeco's right to limitation.          Odeco Oil & Gas Co., Drilling

Division v. Bonnette, 4 F.3d 401, 405 (5th Cir.1993) ("Odeco I"),

cert. denied, --- U.S. ----, 114 S.Ct. 1370, 128 L.Ed.2d 47 (1994).

     On remand, the district court allowed state-court defendants

Shell Oil Company and Shell Offshore, Inc. (collectively "Shell"),

and Whittaker Corporation2 to file contribution and indemnity

claims against Odeco in both state court and in the limitation



     2
      Shell owned and operated the fixed platform upon which the
accident occurred. Whittaker Corporation designed and
manufactured the capsule.

                                     2
proceeding.3   Shell and Whittaker Corporation would not, however,

stipulate as to Odeco's right to limitation.            In order to proceed

in state court, the injured claimants entered into a "Second

Amended   Stipulation"   designed       to    protect    Odeco's   right    to

limitation vis-a-vis Shell's and Whittaker Corporation's claims for

contribution   and   indemnity.4        The   district    court    ruled   the

stipulation adequate, and partially lifted its stay to allow the

tort action in state court to proceed against Odeco and the other

defendants.5   Odeco appeals, asserting that the district court

erred in partially lifting the stay.          Odeco claims that the Second

     3
      Whittaker Corporation seeks contribution from Odeco in the
event that Whittaker is found liable to the injured claimants.
Shell seeks indemnity for defense costs and attorneys' fees along
with legal and contractual indemnity and contribution should
Shell be held liable.
     4
      The claimants stipulated that all issues of limitation
would be litigated in federal court, free from any claims of res
judicata. The claimants also stipulated that they would not seek
recovery from Odeco in excess of $30,000, until the district
court had determined Odeco's right to limitation. Nor would the
claimants pursue claims against Shell and Whittaker in excess of
$30,000 to the extent that those claims would flow back to Odeco
and expose Odeco to total liability in excess of $30,000. The
claimants further stipulated that Shell's and Whittaker
Corporation's defense indemnification claims against Odeco, for
attorney's fees and costs, would take precedence over any
recovery by the claimants. We note that the $30,000 figure is
the alleged value of the vessel and its freight, the true value
of which has not been determined by the district court.
     5
      The district court's order allows the injured claimants to
pursue their claims in state court against all defendants, Shell
to pursue its claims against Odeco for legal and contractual
indemnity and contribution, and Whittaker Corporation to pursue
its claim against Odeco for contribution. The district court
maintained the stay in all other respects, including disallowing
Shell from pursuing its claim for defense indemnification and
attorneys' fees. The order also precludes Shell and Whittaker
Corporation from utilizing res judicata or issue preclusion to
undermine Odeco's right to limitation.

                                    3
Amended Stipulation inadequately protects its rights under the

Limitation Act.

                                       II

        Whether a stipulation adequately protects a party's rights

under the Limitation Act is a question of law which we review de

novo.    See In re Complaint of Port Arthur Towing Co. ex rel. M/V

MISS CAROLYN, 42 F.3d 312, 316-17 (5th Cir.) (reviewing de novo the

adequacy of a stipulation under the Limitation Act), cert. denied,

--- U.S. ----, 116 S.Ct. 87, 133 L.Ed.2d 44 (1995).            We review a

district court's decision to lift a stay for abuse of discretion.

Id. at 317;    Magnolia Marine Transport Co. v. LaPlace Towing Corp.,

964 F.2d 1571, 1582 (5th Cir.1992).

        A shipowner facing potential liability for an accident

occurring on the high seas may file suit in federal court seeking

protection under the Limitation Act.           The Limitation Act allows a

shipowner, lacking privity or knowledge, to limit liability for

damages arising from a maritime accident to the "amount or value of

the interest of such owner in such vessel, and her freight then

pending."     46 U.S.C.App. § 183(a).       The Limitation Act is designed

to protect shipowners in those cases in which "the losses claimed

exceed the value of the vessel and freight."               Magnolia Marine

Transport     Co.,   964   F.2d   at   1575.     A   shipowner's   right   to

limitation, however, is cabined by the "saving to suitors" clause.

See 28 U.S.C. § 1333(1) (giving federal district courts exclusive

jurisdiction over "[a]ny civil case of admiralty or maritime

jurisdiction," but "saving to suitors in all cases all other


                                       4
remedies to which they are otherwise entitled").           The saving to

suitors clause evinces a preference for jury trials and common law

remedies in the forum of the claimant's choice.             See Magnolia

Marine Transport Co., 964 F.2d at 1575 (citing In re Complaint of

Dammers & Vanderheide & Scheepvaart Maats Christina B.V., 836 F.2d

750, 754 (2d Cir.1988)).       Although tension exists between the

Limitation Act and the saving to suitors clause, "the [district]

court's primary concern is to protect the shipowner's absolute

right to claim the Acts's liability cap, and to reserve the

adjudication of that right in the federal forum."         Magnolia Marine

Transport Co., 964 F.2d at 1575.

      In mediating between the right of shipowners to limit their

liability in federal court and the rights of claimants to sue in

the forum of their choice, federal courts have developed two

instances in which a district court must allow a state court action

to proceed:     (1) when the total amount of the claims does not

exceed the    shipowner's   declared   value   of   the   vessel   and   its

freight, and (2) when all claimants stipulate that the federal

court has exclusive jurisdiction over the limitation proceeding,

and that the claimants will not seek to enforce a damage award

greater than the value of the ship and its freight until the

shipowner's right to limitation has been determined by the federal

court.    See, e.g., Texaco, Inc. v. Williams, 47 F.3d 765, 768 (5th

Cir.), cert. denied, --- U.S. ----, 116 S.Ct. 275, 133 L.Ed.2d 196

(1995).    In both instances, allowing the state court action to

proceed is contingent on protecting the "absolute" right of the


                                   5
shipowner to limit his or her liability.                In re Complaint of Port

Arthur Towing Co., 42 F.3d at 316;             Odeco I, 4 F.3d at 405.

         At   issue   in   this   case   is    whether     the    Second   Amended

Stipulation     adequately    protects        Odeco's     right   to   limit   its

liability. Specifically, the question before this court is whether

the parties seeking contribution and indemnity are "claimants"

within the meaning of the Limitation Act, and therefore must

actually sign the stipulation before the injured claimants may

proceed in state court.6

         We believe that we have previously resolved the question of

whether parties seeking contribution and indemnity are "claimants"

within the meaning of the Limitation Act.                See In re Complaint of

Port Arthur Towing, Co., 42 F.3d at 316 (recognizing that "a

"claimant' in this context includes a codefendant who is asserting

a cross claim for indemnification, costs, and attorneys' fees");

Odeco I, 4 F.3d at 405 (vacating stay to allow the district court

to examine possible claims for contribution and indemnity because

those claims "if preserved and matured, could cause a multiple

     6
      The injured claimants argue on appeal that the district
court abused its discretion in allowing Shell and Whittaker
Corporation to file their cross-claims for contribution and
indemnity after the time for filing such claims had expired. See
Supplemental Rules for Certain Admiralty and Maritime Claims F(4)
(setting forth procedures by which the district court shall limit
the amount of time to file claims in the limitation proceeding,
but allowing that "[f]or cause shown, the court may enlarge the
time within which claims may be filed"). It is within the
district court's sound discretion to allow or deny the filing of
claims outside the prescribed time period. Lloyd's Leasing Ltd.
v. Bates, 902 F.2d 368, 371 (5th Cir.1990). After careful review
of the record, we cannot say the district court abused its
discretion in allowing Shell and Whittaker Corporation to file
their claims after the claims period expired.

                                         6
claimant-inadequate fund situation to arise");            see also Gorman v.

Cerasia, 2 F.3d 519, 525 (3d Cir.1993) (noting that "all courts

have recognized that a multiple claimant situation exists where a

third   party   seeking    indemnity       or   contribution   also   requests

attorneys' fees and costs associated with its claim"). Codefendant

cross-claims for indemnity and contribution are liabilities that

must be addressed in order to protect the shipowner's rights under

the Limitation Act.       See Gorman, 2 F.3d at 526-27, 528 (explaining

how claims for indemnity and contribution, as well as claims for

attorneys' fees, can frustrate a shipowner's right to limitation).

Therefore, parties seeking indemnification and contribution from a

shipowner must be considered claimants within the meaning of the

Limitation Act.

        As we have previously held, in order to proceed in state

court, all claimants must sign the stipulation protecting the

shipowner's rights under the Limitation Act.             In re Complaint of

Port Arthur Towing, Co., 42 F.3d at 316.             This rule is a prudent

attempt to balance the inherent conflict between the Limitation Act

and saving to suitors clause.      Although the claimants' interest in

litigating in the forum of their choice is substantial, we will

accede to that choice only "if it is accompanied by stipulations

fully protecting Odeco's right to limit liability and agreeing to

abide by an admiralty court determination of the right to limit."

Odeco I, 4 F.3d at 405.      The shipowner's right to limitation takes

precedence over the claimant's rights to proceed in the forum of

their choice.


                                       7
     Faced with Shell's and Whittaker Corporation's unwillingness

to sign a stipulation, the district court made a valiant effort to

both protect Odeco's rights, and allow the injured claimants to

proceed in state court.      The injured claimants, however, have only

partial control over Odeco's potential liabilities.              The amount of

Odeco's liability to Shell is governed not only by the amount the

injured claimants recover, but also by an agreement between the

defendants which specifies how liability, defense costs, and other

losses will be shared.        In addition, the record indicates that

Whittaker Corporation may seek indemnification from Odeco for its

defense costs.      We are not in a position to predict the possible

developments in the state court proceedings.          Given, for example,

the differing applications of state indemnity law, and the possible

differing   interpretations       of   indemnification     and   contribution

agreements,    we   cannot   be    certain    that   the    Second    Amended

Stipulation, signed solely by the injured claimants, will fully

protect Odeco's limitation rights.           Without such certainty, the

federal forum must remain the sole forum for adjudicating the

claims against Odeco.     See Odeco I, 4 F.3d at 405 n. 7 (explaining

that Pershing Auto Rentals, Inc. v. Gaffney, 279 F.2d 546 (5th

Cir.1960), mandates that the federal forum remain the sole forum

unless all claimants stipulate as to the shipowner's right to

limitation).   Accordingly, we hold that the district court abused

its discretion in allowing the state court action to proceed in the

absence of a stipulation, agreed to by all claimants, protecting




                                       8
Odeco's right to limitation.7

                                III

     We VACATE the district court's order partially lifting the

stay of the Texas state court proceedings and REMAND for further

proceedings consistent with this opinion.




     7
      Odeco also argues that in order for a stipulation to
adequately protect a shipowner's rights, it must recognize a
shipowner's right to seek "exoneration" in federal court.
Exoneration is not mentioned in the Limitation Act, but the
Supplemental Rules for Certain Admiralty and Maritime Claims
states that a complaint seeking limitation may also demand
exoneration. See Supplemental Rules for Certain Admiralty and
Maritime Claims F(1) ("The complaint may demand exoneration from
as well as limitation of liability."). Although we have noted
that "shipowners routinely seek exoneration and limitation of
liability in the alternative," Texaco, Inc., 47 F.3d at 769, we
have never held that exoneration is a necessary element in every
stipulation. Having determined that the stipulation, as written,
inadequately protects Odeco's rights to limitation, we need not
decide whether exoneration is a necessary element of an adequate
stipulation. The district court declined to include exoneration
in the stipulation, and made no explicit findings concerning
Odeco's desire to seek it. Accordingly, we leave this question
to a subsequent case where the issue is more squarely presented.

                                 9