The opinion
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
IN THE MATTER OF JASON
PALERMO, as owner of the vessel
BETTER TIMES II, a 1999 Sea Ray
500 Sundancer, IL 0587KX, in rem,
No. 22-cv-05954
Petitioner,
Judge John F. Kness
v.
LARRY W. SCHAEDEL, as
independent administrator of the
ESTATE OF LANE G. SCHAEDEL,
deceased,
Respondent.
MEMORANDUM OPINION AND ORDER
This case arises out of state-court litigation over the untimely death of an
individual who drowned during a boating excursion in September 2020. Lane
Schaedel, one of several individuals aboard the vessel “Better Times II” as it was
underway in waters near Chicago, either fell or jumped out of the vessel; by the time
his fellow passengers noted Schaedel’s absence, Schaedel had perished. Respondent
Larry Schaedel, Lane Schaedel’s brother, later brought a negligence action against
the vessel’s owner, Petitioner Jason Palermo, in the Circuit Court of Cook, Illinois.
Palermo in turn brought the present admiralty action seeking to limit his liability
under the Limitation of Shipowner’s Liability Act (the “Limitation Act”).
Now before the Court is Respondent’s motion to dismiss for lack of subject
matter jurisdiction. (Dkt. 9.) Respondent contends that, because the Limitation Act
cannot apply here, the Court lacks jurisdiction over this admiralty claim.
For the reasons provided below, Respondent’s state law claim alleges bases of
negligence that, if accepted by the state court, would necessarily demonstrate
Petitioner’s culpability for the events that led to Schaedel’s death. As set forth in
applicable Seventh Circuit precedent, that fact takes this case out of the ambit of the
Limitation Act, as there is no situation in which the Limitation Act could apply. And
because the Limitation Act cannot apply, this case must be dismissed: either because
the Court lacks jurisdiction, or because Petitioner has failed to state a claim on which
relief can be granted. Respondent’s motion to dismiss is therefore granted.
I. BACKGROUND
This case arises out of a boating accident on Lake Michigan in September 2020.
Lane G. Schaedel drowned after he either fell or jumped off of Petitioner Jason
Palermo’s boat. Respondent Larry W. Schaedel, as administrator of Lane Schaedel’s
estate, sued both Palermo and Wesley Murphy, who operated of the boat during the
incident, for damages in an Illinois court under the Illinois Survival and Wrongful
Death Acts. (Dkt. 9 at 7–8.) In response, Petitioner filed the present action seeking
exoneration from, or limitation of, his liability under the Limitation of Shipowner’s
Liability Act (Limitation Act)1, 46 U.S.C. § 30501 et seq. Respondent has moved to
1 As Judge Crabb suggested in her dissent from a decision of the Court of Appeals (Judge
Crabb was sitting by designation), the Limitation Act may be ill-suited to claims concerning
personal pleasure-craft. See Joyce v. Joyce, 975 F.2d 379, 387 (7th Cir. 1992) (Crabb, J.,
dissenting). Congress passed the Limitation Act “to encourage ship-building and to induce
capitalists to invest money in this branch of industry,” Norwich Co. v. Wright, 80 U.S. 104,
121 (1871), and to “level the playing field” of the commercial shipping industry compared to
dismiss the petition for lack of subject-matter jurisdiction.
A. The Incident
Petitioner is the owner of a boat named Better Times II, which is a motor vessel
registered in Illinois. (Dkt. 1 ¶¶ 1–3.) On September 6, 2020, Better Times II was
operating in Lake Michigan, in and around Chicago and Hammond, Indiana.
Petitioner, Murphy, and Schaedel were onboard with a group of six other people,
including Schaedel’s fiancée, Melissa Navarro. (Id. ¶ 3.)
At some point during the cruise, Schaedel disappeared from the boat. It is not
clear whether he jumped from the boat or fell, but the other passengers did not
immediately notice Schaedel’s absence. When they did, the passengers searched for
Schaedel, found him in the water, and attempted rescue procedures. Schaedel,
however, was deceased. (Id. ¶¶ 12–14.)
B. Procedural History
On September 6, 2022, Respondent sued Petitioner and Murphy in the Circuit
Court of Cook County seeking damages for Schaedel’s death. In that state case,
Respondent alleges that both Petitioner and Murphy were negligent and that their
negligence caused Schaedel’s death. Respondent bases his allegations of Petitioner’s
negligence on several grounds, including permitting the boat to operate in dangerous
conditions, negligent entrustment, failure to provide sufficient safety devices to the
European countries with similar limitation statutes. Joyce, 975 F.2d at 383–84 (citing New
Jersey Steam Navigation Co. v. Merchant’s Bank, 47 U.S. 344 (1848). Those justifications are
not apparent in this case, which does not concern commercial shipping. But for purposes of
this decision, the Court assumes that the Limitation Act applies to claims involving personal
pleasure craft.
passengers, and failure to provide reasonable rescue care. (Id. ¶ 19; Dkt. 9-1 ¶¶ 17–
26.)
On October 28, 2022, Petitioner filed this action seeking protection under the
Limitation Act. Petitioner seeks exoneration from liability for claims arising out of
the September 6, 2020 incident, or, in the alternative, that his liability be limited to
the value of his boat, which he estimates to be $165,000. (Dkt. 1 ¶¶ 8, 9, 28.)
Respondent has moved to dismiss the case for lack of subject matter jurisdiction,
arguing that the Limitation Act does not apply to these circumstances. (Dkt. 9 at 2.)
II. LEGAL STANDARD
A motion under Rule 12(b)(1) challenges the Court’s subject matter jurisdiction
over a case. Motions to dismiss for lack of subject matter jurisdiction under Rule
12(b)(1) “are meant to test the sufficiency of the complaint, not to decide the merits
of the case.” Ctr. For Dermatology & Skin Cancer Ltd. v. Burwell, 770 F.3d 586, 588
(7th Cir. 2014). When considering a Rule 12(b)(1) motion, the Court accepts as true
all well-pleaded factual allegations and draws all reasonable inferences in favor of
the plaintiff. Id. But the plaintiff bears the burden of proving that the jurisdictional
requirements have been met. Id.
Conversely, to the extent the question is whether Petitioner has stated a viable
claim,2 each complaint “must contain sufficient factual matter, accepted as true, to
‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). These
2 See Section III(B) below addressing the Seventh Circuit’s analysis in Joyce of the
jurisdiction-versus-failure to state a claim question.
allegations “must be enough to raise a right to relief above the speculative level.”
Twombly, 550 U.S. at 555. Put another way, the complaint must present a “short,
plain, and plausible factual narrative that conveys a story that holds together.”
Kaminski v. Elite Staffing, Inc., 23 F.4th 774, 777 (7th Cir. 2022) (cleaned up). In
evaluating a motion to dismiss, the Court must accept as true the complaint’s factual
allegations and draw reasonable inferences in the plaintiff’s favor. Iqbal, 556 U.S. at
678. But even though factual allegations are entitled to the assumption of truth, mere
legal conclusions are not. Id. at 678–79.
III. DISCUSSION
A. The Limitation Act Does Not Apply to this Case
Of central importance to Respondent’s motion to dismiss is whether the
Limitation Act gives this Court the power to limit Petitioner’s liability for the
negligent acts that Respondent alleges Petitioner committed. Under the
circumstances presented by this dispute, the Limitation Act does not, for the reasons
that follow, provide that authority.
Under the Limitation Act, a shipowner can file an admiralty action in federal
court to limit the shipowner’s potential liability “to the value of the vessel and
pending freight.” 46 U.S.C. § 30523(a). Claims subject to limitation under the
Limitation Act include those involving “any loss, damage, or injury by collision, or
any act, matter, or thing, loss, damage, or forfeiture, done, occasioned, or incurred,
without the privity or knowledge of the owner.” 46 U.S.C. § 30523(b). “Privity” means
“some personal participation of the owner in the fault or negligence which caused or
contributed to the loss or injury.” Coryell v. Phipps, 317 U.S. 406, 411 (1942). And
“knowledge” means “knew or had reason to know.” Joyce, 975 F.2d at 386.
In effect, the Limitation Act protects “innocent shipowners and investors who
were sued for damages caused through no fault or neglect of their own.” Great Lakes
Dredge & Dock Co. v. City of Chicago, 3 F.3d 225, 231 (7th Cir. 1993). Shipowners
remain liable for their own direct fault or negligence. See Am. Car & Foundry Co. v.
Brassert, 289 U.S. 261, 264 (1933).
Respondent argues that this case is most analogous to Joyce. In Joyce, a 1992
decision of the Seventh Circuit, an injured pleasure boat passenger sued the boat’s
owner for negligently entrusting the boat to another individual who was recklessly
driving the boat when the passenger was seriously injured. 975 F.2d at 381. The
owner later petitioned the federal court to limit the owner’s liability under the
Limitation Act. Id. But the district court dismissed the case for lack of subject matter
jurisdiction and explained that the passenger’s allegations relating to the tort of
negligent entrustment made it impossible for the Limitation Act to apply. Id. at 382.
In affirming, the Seventh Circuit concluded that if a shipowner “knows enough to be
liable for negligent entrustment, he knows too much to be eligible for limited liability
under the [Limitation] Act.” Id. at 385. Dismissal of the case was therefore warranted
because under either possible scenario—no negligence (so no liability to limit), or
negligence with knowledge—the Limitation Act could not apply. Id.
Petitioner disagrees that Joyce controls and instead argues that this case is
more analogous to In re Kothe, 2017 WL 4535962 (N.D. Ill. 2017). In Kothe, sailboat
owner and Limitation Act petitioner Patricia Kothe entered into a boat ownership
time-share agreement with Daniel Brown. Id. at *8. On the day in question, Brown,
Kothe, and others sailed the boat during rough weather; while Kothe was at the helm,
Brown fell through an allegedly poorly maintained lifeline at the ship’s bow and into
the lake. Id. at *9. Kothe attempted to rescue Brown, but Brown died from drowning.
Id. at *9–10. Brown’s estate brought a wrongful death action in state court, alleging
“numerous negligent omissions, some pertaining to [Kothe’s] long-term maintenance
of the boat, others pertaining to the pre-departure investigation on the day of the
incident, and others related to [Kothe’s] actions once Brown fell in the water.” Id. at
*20.
Kothe filed a limitation of liability claim in federal court. Given that Kothe
shared ownership with others and the record was unclear as to who bore certain
maintenance responsibilities, the court held that the petitioner’s privity or knowledge
of the alleged negligence was not “clearly an undisputed issue” such that “limitation
[would be] impossible for Petitioner [Kothe].” Id. at *19–20. As a result, the Kothe
court denied the estate’s motion for summary judgment. Id. at *19.
With due respect to Petitioner’s argument, Joyce controls over Kothe.
Respondent’s substantive allegations establish that the alleged negligence that
caused Schaedel’s death could not have occurred—if it even occurred at all—without
Petitioner’s privity or knowledge. This fact alone distinguishes this case from Kothe,
where a fact-finder could have found that the negligence alleged, including improper
long-term maintenance, might have occurred without Kothe’s privity or knowledge.
In Joyce, the Seventh Circuit conducted its Limitation Act analysis by first
looking to the character of the state law doctrines under which liability could be
found. 975 F.2d at 385. More specifically, the Seventh Circuit analyzed the tort of
negligent entrustment to determine whether that form of negligence could have
occurred without the shipowner’s privity or knowledge. Id. Joyce concluded that
negligent entrustment, by its own doctrinal definition, could not occur without the
shipowner’s knowledge. Id. As a result, either the alleged injury was not a result of
negligent entrustment and therefore there would be no liability to limit, or it was a
result of negligent entrustment of which the owner must have, by definition, had
knowledge. Id. Because the Limitation Act could not apply in any way, the Seventh
Circuit held that the district court was correct in dismissing the case for want of
jurisdiction. Id.
Petitioner argues that the precedential value of Joyce is limited to
Respondent’s allegation of negligent entrustment. Not so. Negligent entrustment was
simply the specific allegation of negligence that the Seventh Circuit in Joyce had
before it; Joyce’s analysis of how claims of negligence fall into (or out of) Limitation
Act coverage predominated. It is that analysis that applies here.
Applying Joyce to this case requires dismissal. Respondent alleges that
Petitioner was negligent in that Petitioner:
a. Permitted the Better Times II to operate in dangerous weather
conditions;
b. Permitted the Better Times II to leave the Hammond Marina
pier in dangerous weather conditions;
c. Entrusted the operation of the Better Times II to an operator
who lacked sufficient experience;
d. Entrusted the operation of the Better Times II to an operator
who lacked sufficient training;
e. Failed to have safety devices for all passengers;
f. Failed to train the operator of the boat;
g. Failed to supervise the operation of the Better Times II; and/or
h. Failed to procure rescue care for [Schaedel] after he fell off the
Better Times II.
(Dkt. 9 at 7–8.)
Each of these predicates is directed to Petitioner’s own conduct. Petitioner
either did or did not permit the Better Times II to operate in dangerous weather
conditions. If he did not, there is no negligence and therefore no liability for this Court
to limit. If he did, he must have done so with privity or knowledge: “permit[ing]” by
definition requires personal participation. As with the tort of negligent entrustment
at issue in Joyce, there is no scenario under which the Limitation Act could apply. It
would have been impossible for Petitioner to have permitted operation in dangerous
weather without knowing he was doing so or personally participating in the
permission.
Respondent’s allegation that Petitioner negligently permitted the Better Times
II to operate in dangerous weather conditions, therefore, cannot sustain an action for
Limitation Act protection; neither can Respondent’s allegation that Petitioner
permitted the boat to leave the Hammond Marina pier in dangerous weather
conditions. Respondent’s allegations that Petitioner was negligent in entrusting the
operation of the boat to an operator lacking sufficient experience and training sound
in negligent entrustment and fall under Joyce. Respondent’s allegation that
Petitioner was negligent in failing to provide sufficient safety devices is similar to the
allegation of permitting the boat to leave in bad weather, in that either Petitioner did
not fail to provide sufficient safety devices, and so liability for Schaedel’s death could
not arise from this basis, or he did fail to provide safety devices—negligence of which
he should have known as owner and passenger on the boat—and the Limitation Act
would not apply. Respondent’s allegation that Petitioner was negligent in failing to
procure rescue care similarly does not allow protection under the Limitation Act.3
Respondent’s allegations of Petitioner’s failure to train or supervise the
operator of the boat cannot implicate the Limitation Act because those doctrines also
require privity or knowledge. In negligent training and supervision claims, the
plaintiff “must prove that the employer was itself negligent. The plaintiff must prove
the existence of a duty on the part of the employer to the injured party, a breach of
that duty, and an injury proximately caused by the breach.” Nat’l R.R. Passenger
Corp. v. Terracon Consultants, Inc., 13 N.E.3d 834, 839–40 (Ill. App. Ct. 2014)
(cleaned up). Analysis of breach in either of these claims would require an analysis of
the personal participation—i.e., privity—of the Petitioner: questioning the sufficiency
of Petitioner’s training and supervision of Murphy requires a review of Petitioner’s
3 Kothe recognized that the Fifth Circuit—and perhaps even the Seventh Circuit in
Joyce—established that “ ‘when an owner is in control of and operating his pleasure craft he
has privity or knowledge with respect to its operation.’ ” Kothe, U.S. Dist. LEXIS 168239, at
*17 (quoting Fecht v. Makowski, 406 F.2d 721, 722 (5th Cir. 1969). But because Kothe dealt
with allegations of negligence off the boat and at an earlier time, it declined to extend Fecht
to cover all negligence, regardless of time or place, so long as the owner was onboard at the
time of the incident. There is no such distinction here. Each allegation of negligence is
bounded by time and location to the incident leading to Schaedel’s unfortunate death.
acts taken as part of that training and supervision. Either Petitioner met the
standard of care and thus did not cause any compensable harm, or Petitioner
breached by failing to adequately train or supervise; either outcome precludes
application of the Limitation Act.
In short, Respondent’s state-law complaint alleges bases of direct negligence—
negligence that cannot have occurred without Petitioner’s privity or knowledge.
Petitioner himself acknowledges that “the [Respondent’s state law] claims against
[Petitioner] include multiple claims of direct negligence.” (Dkt. 17 at 3.) And “[f]or his
own fault, neglect and contracts the owner remains liable.” Brassert, 289 U.S. at 264.
As a result, the Limitation Act cannot apply in this case.
B. Dismissal based on lack of Subject Matter Jurisdiction
Jurisdiction, as the Supreme Court has observed, is a word of many meanings.
See Wilkins v. United States, 143 S. Ct. 870, 877 (2023) (warning federal courts about
misusing the term “jurisdictional” to refer to “nonjurisdictional prescriptions”). For
an issue to be jurisdictional, it must be within the realm of requirements that a
plaintiff must complete or exhaust before filing suit. Otherwise, the claim falls within
the category of non-jurisdictional claim-processing rules, which seek to promote the
orderly progress of litigation by requiring the parties to take certain procedural steps
at certain specified times. Fort Bend County v. Davis, 139 S. Ct. 1843, 1849 (2019).
To help delineate this jurisdictional boundary, the Supreme Court has instructed the
federal courts to treat a procedural requirement as jurisdictional only if Congress
clearly states that it is. Arbaugh v. Y & H Corp., 546 U.S. 500, 515 (2006).
Respondent’s motion to dismiss for lack of jurisdiction assumes that the
Limitation Act’s protection is jurisdictional. But the statute itself does not clearly
state that it is meant to be a jurisdictional threshold. In considering subject matter
jurisdiction, Joyce did not proceed by explicitly referring to the text of the Limitation
Act. Joyce instead merely explained why the Limitation Act could not apply. That
circumstance, the Seventh Circuit explained, was enough to uphold the dismissal.
Joyce questioned whether inapplicability of the Limitation Act should be
characterized as a jurisdictional defect. 975 F.2d at 383 n.3. But it nevertheless
upheld the dismissal because the district court held that “the claim asserted
here . . . is so insubstantial on its face as to warrant a dismissal on the ground of lack
of jurisdiction.” Id. (citing cases holding that complaints without merit may be
dismissed on jurisdictional grounds). And “even if the district court was wrong in
characterizing its action as a dismissal for want of jurisdiction . . . [,] we nevertheless
would sustain its disposition of the case” because “ ‘even after [any] proposed
amendment, the complaint as a matter of law fails to state a claim upon which relief
can be granted.’ ” Id. at 386 n.7 (quoting Shockley v. Jones, 823 F.2d 1068, 1073 (7th
Cir. 1987)).
A shipowner “has the ultimate burden of proving lack of privity or knowledge
in federal court.” In re McCarthy Bros. Co., 83 F.3d 821, 827 (7th Cir. 1996); see also
Coryell, 317 U.S. at 409; In re Oil Spill by the Amoco Cadiz, 954 F.2d 1279, 1303 (7th
Cir. 1992). Petitioner’s complaint does not plausibly allege lack of privity or
knowledge. Where the shipowner “fails to establish lack of privity or knowledge, the
federal court lacks the power under the Limitation Act to limit his liability, and the
federal court must relinquish exclusive jurisdiction and allow the Respondent to
proceed in state court.” McCarthy Bros., 83 F.3d at 827.
Supreme Court jurisprudence on jurisdiction has evolved post-Joyce. But Joyce
remains the most on-point, precedential case on the issue before the Court, and that
decision explains that a court can do nothing more than dismiss the case if the
pleadings make clear that the Limitation Act cannot apply. That is the circumstance
here. Accordingly, Respondent’s motion to dismiss is granted.
IV. CONCLUSION
Because the negligence alleged by Respondent in an Illinois court could not
have occurred without Petitioner’s privity or knowledge, the Limitation Act cannot
apply. Respondent’s motion to dismiss (Dkt. 9) is therefore granted.
SO ORDERED in No. 22-cv-05954.
Date: September 25, 2023 _ LU) Kame
JO F. KNESS
United States District Judge
4 Because this dismissal is based on Joyce, which affirmed the dismissal of a Limitation
Act suit for lack of subject matter jurisdiction, the present dismissal is without prejudice.
See, e.g., Balle v. Kennedy, 73 F.4th 548, 560 (7th Cir. 20238).
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