Amicus Brief — Mission Insurance v. United States

82-1517

NO. APR 11 1983

— ——

In the rm

Supreme Court of the United States

OCTOBER TERM, 1982

MISSION INSURANCE COMPANY

Petitioner

Versus

UNITED STATES OF AMERICA

Respondent

BRIEF OF AMICUS CURIAE

WATER QUALITY INSURANCE SYNDICATE

IN SUPPORT OF PETITION FOR

WRIT OF CERTIORARI

SHELDON A. VOGEL

40 Wall Street

New York, New York 10005

Water Quality Insurance Syndicate

Of Counsel: THACHER, PROFFITT & WOOD and

MONTGOMERY, BARNETT, BROWN & READ

A AEA

AB Letter Service, Inc., 327 Chartres St., New Orleans, La. (504) 561-5555

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1982

MISSION INSURANCE COMPANY

Petitioner

Versus

UNITED STATES OF AMERICA

Respondent

BRIEF OF AMICUS CURIAE

WATER QUALITY INSURANCE SYNDICATE IN

SUPPORT OF MISSION INSURANCE COMPANY’S

PETITION FOR A WRIT OF CERTIORARI TO

THE COURT OF APPEALS FOR THE FIFTH CIRCUIT

Amicus Curiae Water Quality Insurance Syndicate

respectfully joins Petitioner, Mission Insurance Company,

in praying that a Writ of Certiorari issue to review the

Judgment and Opinion of the United States Court of Ap-

peals for the Fifth Circuit entered on July 30, 1982.

i

TABLE OF CONTENTS

Page

I — —— ————— j —j———j———— i

Table of Authorities sium —

Statement of the Issue. . . . . . .. .. . . . 1

Statement of Interest of Amicus . — 1

Summary of Argument ms 2

9. —5——————.————————— 3

— c —— ——ů——ů 14

Appendix A—§ 12(f)(1) of Senate Bill N A- 1

Appendix B—Complaint of Berkley Curtis Bay Co.

et al., 78 Civ. 3552 (S. D. N. v.) [Memorandum

Opinion 2/11/83] A- 2

ii

TABLE OF AUTHORITIES

Cases Page

Complaint of Berkley Curtis Bay Co. et al.,

78 Cir. 3552 S.D.N.Y. [Memorandum Opinion

Tc 12

Complaint of Tug Ocean 8 Inc. v. L. S.,

436 F.Supp. 907 (S. D. N. v. 1977). .. . . . 12

First National Bank v. Walker Bank & Trust Co.,

. 6

Gulf Oil Corp. v. Copp Paving Co.,

T 9

Pan American World Airways, Inc. v. C. A. B.,

„ Piccecassrccncinninnsesccceciestsnonecemmanens 9

Steuart Transp. Co. v. Allied Towing Corp.,

neee 6

United States v. Dixie Carriers, Inc.,

627 F. 2d 736 (5th Cir. 1980): : : : : 6,10

United States v. M/V BIG SAM,

681 F.2d 432 (5th Cir. 1982)................... 1. 8, 9, 10, 11,14

United States v. Hollywood Marine, Inc.

625 F. 2d 524 (5th Cir. 1980) cert. den.,

PE NE ———— 2,13

United States v. LeBoeuf Bros. Towing Co.

621 F. ad 787 (5th Cir. 1980) : : . ::. . 11. 12

United States v. State of Maryland,

349 F. 2d 693 (D. C. Cir. 1965) ———t—————.———9—tN 6

STATUTES

Federal Water Quality Control Act Amendments of

1972 (FWPCA), 33 U.S.C. §§ 1251; et seq. ; 3

33 U.S.C. §1321(f)... 1, 2, 3, 6, 7, 8, 10, 11, 12, 13

33 U.S.C. §1321(g) 1, 2, 3, 5, 6, 7, 8, 9, 10, 11

. 2, 3, 8. 9, 10, 11

LEGISLATIVE HISTORY

Sec. 12(f), Senate Amendment to H.R. 4148, reprinted

in 1970 U.S. Code Cong. & Ad. News 2691 at 2721...7, 8

iii

Sec. 120), Senate Amendment to H.R. 4148, reprinted

in 1970 U.S. Code Cong. & Ad. News 2691 at 2721.......

n wise cscnnsvnsncnsstcsstascrnsocsccnscsnsacsnonsevion

. ——

116 Cong. Rec. 9332 (1970). .

Report of Senate Committee on Public Works No.

91-351 91st Congress, Ist Sess. (1969). . . .

1

STATEMENT OF THE ISSUE

Is the government’s remedy under 33 U.S.C. §1321

(g) for pollution clean-up expenses against third parties

whose simple negligence is the sole cause of the discharge

of oil or other hazardous substances into the navigable

waters of the United States an exclusive remedy,

precluding resort to a general maritime law tort remedy

which circumvents the FWPCA’s tonnage limits?

STATEMENT OF INTEREST OF AMICUS CURIAE

Water Quality Insurance Syndicate (WQIS) is a

group of major American and European companies which

have formed a syndicate to insure the liabilities of

American vessel owners and operators under the Federal

Water Pollution Control Act FWPCA). Wels insures the

great majority of American river and harbor craft against

FWPCA and general maritime tort liability for pollution

damage.

The decision of July 30, 1982 by the United States

Court of Appeals, Fifth Circuit, in United States vs. M/V

BIG SAM, in rem, et al, (hereafter “BIG SAM”), 681 F.2d

432 (5th Cir. 1982) rehearing denied December 13, 1982,

693 F.2d 451 (5th Cir. 1982), restricts the exclusivity of

FWPCA to subsection (f) of 33 U.S.C. 51321. ie. to

discharging vessel owners and operators, and denies ex-

clusivity to subsection (g), thus making available to the

government a general maritime tort remedy against third

party sole fault non-discharging vessel owners and

operators, depriving them of the tonnage limitation of

liability of the FWPCA. WQIS has a vital interest in this

litigation because of the increased exposure under its

policies resulting from the decision in the captioned case.

The impact of BIG SAM on insurers under the

FWPCA is compounded by the difficulty which the lower

courts have experienced in defining the term third party”’,

particularly in towage situations. Under the present state

of the law it is not possible for pollution insurers and their

assureds to define the parameters of their exposure for

clean-up costs, a situation which Justice Rehnquist

describes, in his dissent to the denial of certiorari in

Hollywood Marine, Inc. and Water Quality Insurance Syn-

dicate v. United States, 451 U.S. 994 (1981), as justifying

“the Court granting certiorari and giving the issue plenary

consideration at this time

SUMMARY OF ARGUMENT

1.

The Court of Appeals has adopted a theory of

unlimited liability based on simple negligence which was

considered and rejected by Congress.

2.

Subsection (h) of 33 U.S.C. 51321 can be interpreted

to serve three separate and distinct purposes without ig-

noring the tonnage limitation of subsection (g) as is done

by BIG SAM.

3.

By refusing to interpret subsections (f) and (g) as pro-

viding similar exclusive remedies in the absence of willful

negligence, BIG SAM has created uncertain cleanup

liabilities for insureds and insurers in collision and towage

situations.

3

ARGUMENT

In the wake of the Torrey Canyon disaster in 1967

and the Santa Barbara oil spill in 1969, the Congress under-

took to draft legislation which would serve the public need

for petroleum products as well as the public need for pro-

tection of the environment. The Federal Water Quality Im-

provement Act of 1970 amended and was incorporated

within the Federal Water Pollution Act of 1948, 33 U.S.C.

51161 (1970). This legislation was amended by the Federal

Water Pollution Control Act amendments of 1972

(FWPCA) 33 U.S.C. §1251, et seg. The subsections of this

legislation which are relevant to this case are 33 U.S.C.

§1321(f), (g) and (h).

The legislative history of these sections reflects a

careful balancing of competing interests, the most critical

aspect of which is the extension of the tonnage limitation

and the elimination of an inconsistent general maritime law

remedy. Congress’ decision to amend the FWPCA in 1972

was motivated by its recognition that existing statutory

and federal maritime law was inadequate to preserve the

integrity of U.S. waters.! In drafting the FWPCA amend-

ments, Congress was acutely aware of two competing in-

terests, both vital to the nation’s prosperity: (1) the need

for clean water, and (2) the need for oil. Overzealous devo-

tion to either interest detracts from the other, possibly

with disastrous consequences. The nation could best ob-

tain clean water at no expense to the government by im-

posing upon the shipping industry full responsibility for

costs of cleanup. The result undoubtedly would be a shor-

tage of oil occasioned by the inability of many carriers to

stay in business under economically burdensome conditions,

1 116 Cong. Rec. 9332 (1970); 3 EPA Legal Compilation 1995

(1973).

4

or exorbitantly expensive oil priced to defray the costs of

unlimited clean-up responsibility. The public would then

share the cost of oil spills indirectly through higher prices

at the pump. The statute which ultimately was enacted

represents a compromise between the two competing needs

of the nation.

The legislative history shows that Congress decided

that these competing needs could best be harmonized

through legislation which struck a reasonable balance by

guaranteeing the government some recoupment of cleanup

costs in all cases by permitting recovery without the need

of proving negligence. The quid pro quo for strict liability

was a tonnage limit on that liability unless willful

negligence caused the spill. In reaching this conclusion,

Congress considered four factors:

(1) [T]he effect of to rigid a liability test on

maritime commerce; (2) the availability of in-

surance for any specific amount or type of liabili-

ty; (3) the economic impact of any specific amount

of liability on the owner of the vessel, the shipper

of the oil and the consumer; and (4) the impact of

a burdensome liability test on the U.S. Govern-

ment and the people of the United States. Report

of Senate Committee on Public Works No.

911-351, 91st Cong., Ist Sess. (1969) at p. 5.

These factors demonstrate that, although Congress did not

wish to unduly burden the public sector, it wished to avoid

crippling the shipping industry which serves a vital public

need.

Congress considered four different approaches to

cleanup expenses:

5

(1) Absolute liability with unlimited recovery;

(2) Liability predicated on negligence with limited

recovery;

(3) Liability predicated on negligence with

unlimited recovery; and

(4) Absolute liability with limited recovery.

Congress selected a modification of the fourth approach

which accorded the government the right to collect cleanup

costs (within the defined limits of liability) without having

to prove that negligence caused the spill and which furnish-

ed dischargers and third parties four avenues of escape—

an approach Congress deemed the best available and most

utilitarian. The limited liability aspect of the bill was

crucial to its enactment as reflected in the words of Senator

Cooper:

Consistent with the philosophy of absolute liabili-

ty, limits of liability are provided. This is an im-

portant provision, which I consider draws a pro-

per balance between the public interest and the

ability of private enterprise to respond. I think it

should be pointed out that the provision was

adopted only after the most careful consideration

and thorough study. 116 Cong. Rec. 9003 (1970);

3 EPA Legal Compilation 1967 (1973).

Congress recognized that any other approach placed too

great a demand on the private sector which inevitably

would visit a reciprocal disadvantage on the public sector

in the form of lack of oil or unaffordably high oil prices. The

burden on the private sector is the same regardless of

whether the responsible party is the subsection (f)

discharger or the subsection (g) third party.

Because a statute should be given a meaning which

6

carries out its purpose? and because, conversely, a statute

should not be construed in a manner which frustrates its

clear-cut purpose. 3 subsection (g) should be interpreted to

effectuate Congress’ intent to strike a proper balance.

United States vs. Dixie Carriers, Inc., 627 F.2d 736 (5th

Cir. 1980), and Steuart Transp. Co. vs. Allied Towing Corp.,

596 F.2d 609 (Ist Cir. 1979), found that subsection (f) must

be interpreted to be the exclusive remedy because to do

otherwise would upset that balance. Because subsections

(f) and (g) are virtually identical, there is no compelling

reason to justify an interpretation of subsection (g) incon-

sistent with Dixie Carriers and subsection (f) and which

would patently upset the balance intended by Congress.

THE COURT OF APPEALS HAS ADOPTED A

THEORY OF UNLIMITED LIABILITY BAS-

ED ON SIMPLE NEGLIGENCE WHICH WAS

CONSIDERED AND REJECTED BY THE

CONGRESS.

The FWPCA's legislative history reflects a clearly

articulated balance of competing interests. Congress

specifically considered the option of providing for strict

liability with accompanying tonnage limits when fault

could not be established and tort liability with unlimited

recovery if fault could be established. Congress’ rejection

of that approach ought to preclude an interpretation of the

FWPCA producing that precise result, but that rejected

approach is precisely what BIG SAM adopts.

U.S. v. Dixie Carriers, Inc., supra, relying on the

2 United States v. State of Maryland, 349 F. 2d 693, 695 (D.C. Cir.

1965).

3 First National Bank v. Walker Bank & Trust Co., 385 U.S. 252,

261; 87 S.Ct. 492, 497 (1966).

7

same legislative history, recognized that subsection (f) was

an exclusive remedy. Subsection (g) is descended from the

same lineage as subsection (f), and must be likewise an ex-

clusive remedy.

The choice of absolute liability with limited recovery

was not easily made. The form which the FWPCA finally

assumed resulted from extensive legislative debate,

disagreement and compromise.4 The House and the Senate

initially were unable to agree and a conference of members

from the Senate and the House was appointed to hammer

out a compromise.

When Congress first considered pollution cleanup

legislation, the House and the Senate chose divergent

paths. The House bill allowed recovery upon a showing of

simple negligence, and reversed the burden of proof. No

reference to third parties appeared in the bill. The Senate

bill was similar to the bill ultimately enacted. It imposed

strict liability with tonnage limits, but allowed unlimited

recovery upon a showing of simple negligence. b §12(f)(l) of

the Senate bill was aimed only at the discharger and

created the same four avenues of escape that are found in

the statute as enacted, including the act or omission of a

third party irrespective of fault. The Senate bill did not ad-

dress the impact of a sole-cause third party, did not

substitute such a third party for the discharger and conse-

quently did not contain a parallel to subsection (g) of the

FWPCA. The Senate bill did, however, have a provision

* See, e.g., 116 Cong. Rec. 8984 (1970); 3 EPA Legal Compilation

1966 (1973).

5 See §12(f\(l) of the Senate bill which corresponds to subsection (f)

of the FWPCA. The relevant portions of §12(f)(l) are found in Appendix

A infra.

similar to subsection (h).6

Since neither §12(f)(l) nor any other provision of the

Senate bill regulated the government's claim against third

parties, the Senate bill did not have exclusivity impact on

the government’s general maritime law tort remedy

against third parties. §12(l) (subsection (h)’s counterpart),

therefore, was not and could not have been designed to

preserve remedies otherwise excluded. Rather §12(l) could

only have been designed to confirm that the statute did not

exclude remedies and causes of action not addressed in the

liability portion of the statute, i- e., §12(f)(1).

When the FWPCA amendments emerged from con-

ference, the bill ultimately enacted retained the Senate

bill’s strict liability feature, granted unlimited recovery

but only for willful negligence and added subsection (g) to

substitute a sole-cause third party, who otherwise would

go unscathed if without fault, for the discharger. 51 20) of

the Senate bill was retained as subsection (h), and, like its

counterpart, was designed to confirm that the statute did

not exclude remedies and causes of action that were not ad-

dressed in the liability portion of the statute, i e., subsec-

tions (f) and (g). Consequently, the legislative history of

subsection (h), as manifested in the evolution of the

statute, does not support the BIG SAM panel’s statement

that the legislative history...affords no reason not to read

this statute according to its unambiguous expression.“ 681

F. ad at 442. To the contrary, the evolution of subsection (h)

strongly suggests that it serves only to preserve remedies

that are not addressed in subsection (g).

Where the final version of a bill rejects the approach

5 See §12(l) which is quoted in the BIG SAM opinion, 622 F.2d at

9

taken in an earlier draft, courts have refused to adopt an in-

terpretation which adheres to the rejected language, obser-

ving that the rejection strongly militates against a judg-

ment that Congress intended a result that it expressly

declined to enact. Gulf Oil Corp. v. Copp Paving Co., 419

U.S. 186, 200 (1974). See also Pan American World Air

ways, Inc. v. C. A. B., 380 F.2d 770 (2d Cir. 1967), where, in

considering a statute which also resulted from conference,

the Court stated:

We do not agree. That Congress has adopted the

House version of the bill, specifically rejecting

the Senate’s conflicting version, is of course an

extremely significant factor in determining what

was Congress’ intention with respect to the mat-

ters in issue. It would be foolish indeed to

disregard the one source of legislative history

that explains the reasons for the conference com-

mittee’s action. (citations omitted) 380 F.2d at

781.

Because Congress rejected the Senate’s approach, the Gulf

Oil and Pan American decisions preclude the BIG SAM in-

terpretation which reinstates the rejected Senate ap-

proach.

SUBSECTION (h) CAN BE INTERPRETED

TO SERVE THREE SEPARATE AND

DISTINCT PURPOSES WITHOUT IGNOR-

ING THE TONNAGE LIMITATION OF

SUBSECTION (g).

To give effect to subsection (h) the panel in BIG

SAM concluded that, as to third parties, subsection (g) has

no meaning.

It is respectfully submitted that the Court’s “single-

10

minded focus on the language of subsection (h)’”’? does un-

necessary violence to the statute. Subsection (h) can be

read in relation to subsection (g) and both can be given

meaning. The concept of exclusivity articulated in U.S. v.

Dixie Carriers, Inc., supra, the linguistic and conceptual

identity of subsections (f) and (g), and the canons of

statutory construction can be adhered to by reading

subsection (h) as serving one or more of the following pur-

poses which do not negate subsection (g):

First—Subsection (h) preserves the government's

remedies against third parties for damages other

than cleanup costs (e.g., oil spill damage to

government property).

Second—Subsection (h) preserves the govern-

ment’s remedies for abatement of a nuisance.

Third—Subsection (h) permits the government to

join in one suit all potentially responsible par-

ties—dischargers, third parties and, if indicated,

fourth parties—thereby avoiding a proliferation

of litigation which overly burdens the courts.

The first suggestion is based upon the distinction

between cleanup costs and property damage. Subsection

(h) makes it clear that the government may proceed against

a third party to recover any physical damages to govern-

ment property which the government may sustain as the

result of an oil spill.

The second suggestion recognizes that there may be

instances in which continuing behavior results in spillage.

7 The quoted language is taken from the dissent of Judges Gee,

Brown, Rubin and Jolly to the Fifth Circuit’s denial of a Rehearing en

Banc. 693 F.2d at 459.

11

Subsection (h) preserves the government's right to seek in-

junctive relief against third parties to abate a nuisance.

The third suggestion is procedural and avoids a

potentially endless litigation wherein the government may

first proceed against the discharging vessel only to find

that a third party caused the spill and then may bring a se-

cond suit or amend its complaint to bring in the third party

only to find that a fourth party was the cause and so on.

United States v. LeBoeuf Bros. Towing Co., 621 F.2d 787

(5th Cir. 1980), suggests that subsection (f) requires the

government to proceed first against the discharging vessel

alone. Indeed a literal reading of the statute requires this

conclusion. Subsection (h) permits the government to name

all potentially responsible parties in one litigation.

BY REFUSING TO INTERPRET SUBSEC-

TIONS (f) AND (g) AS PROVIDING SIMILAR

EXCLUSIVE REMEDIES IN THE ABSENCE

OF WILLFUL NEGLIGENCE, BIG SAM HAS

CREATED UNCERTAIN CLEAN-UP LIABIL-

ITIES FOR INSUREDS AND INSURERS IN

COLLISION AND TOWAGE SITUATIONS.

By differentiating between the protection afforded

by subsection (f) and subsection (g), BIG SAM has created

uncertainty and confusion never intended by Congress.

The difference BIG SAM creates between the two subsec-

tions highlights the confusion in the decisions of the lower

courts in defining the term third party in subsections (f),

(g) and (h). The decisions of the lower courts relating to

whether the tower of a spilling vessel is a third party

presented serious difficulties even before BIG SAM. The

difficulties are now compounded, for under BIG SAM the

consequences to the towing vesel categorized as a third

party result in unlimited liability for clean-up costs even

12

though the towing vessel is not guilty of willful negligence.

The decisions of the lower courts create anomalies only this

court can resolve.

In Complaint of Tug OCEAN PRINCE, INC., et al.

v. United States, 436 F.Supp. 907, 923,24 (S.D.N.Y. 1977),

affirmed in part, reversed in part on other grounds, 584

F.2d 1151 (2nd Cir. 1978), certiorari denied, 440 U.S. 959

(1979), it was held that the towing vessel is a third party

for purposes of the discharging vessel's subsection 1321

(f)(l) defense. However, in United States v. LeBeouf Bros.

Towing Co., Inc., 621 F.2d 787 (5th Cir. 1980), the Fifth Cir-

cuit held that the towing vessel is not a third party”

whose sole fault relieves the discharging barge of liability

under subsection (f). Further confusion is found in The

Matter of the Complaint of Berkley Curtis Bay Co. and

Moran Towing & Transportation Co., Inc., decided by U.S.

District Court for the Southern District of New York,

[Memorandum Opinion and Order of February 11, 1983; 78

Civ. 3552 (ADS)]8, in which the tug GRACE MORAN

caused the grounding and total loss of the dredge PENN-

SYLVANIA. In a suit by the United States for clean-up

costs, the court said:

Moran is undoubtedly a third-party under

subsection (h)(2). As detailed in opinions by the

Fifth and First Circuit a narrow reading of the

sole-cause third · party exception in subsection

1321 (f) is justified by the statute’s purpose of

assuring government reimbursement for clean-up

costs by holding discharging vessels strictly

liable. See United States v. LeBeouf Bros. Tow-

ing Co., 621 F.2d 787 (5th Cir.) rehearing denied,

629 F.2d 1350 (1980), certiorari denied, 452 U.S.

906 (1981); Burgess v. M/V TAMANO, 564 F.2d

ie decision is reproduced in Appendix B infra.

13

964, 981-82 (1st Cir. 1977), certiorari denied, 435

U.S. 941 (1978). This purpose is not served by

narrowly construing the reference to third par-

ty in subsection 1321 (h)(2); rather, a broad con-

struction of the term in subsection (h)(2) serves

the purpose of the statute in the same way a nar-

row reading of the term in subsection (f) does: by

providing another source from which the govern-

ment may attempt to procure reimbursement for

clean-up expenses. (See Appendix B at A-11 infra)

The insurance industry is entitled to know, at the very

least, what the term third party means and whether it

means different things under different sections of the same

statute.

The confusion in the decisions of the lower courts’ in-

terpreting the third-party defense in subsection (f) can best

be resolved by this Court. BIG SAM injects added urgency

into the need for clarification. To delay a resolution of this

conflict only causes the shipping and insurance industries

to incur added legal expenses which are ultimately borne

by the taxpayer.

In U.S. v. Hollywood Marine, Inc., et al, 625 F.2d

524 (5th Cir. 1980), cert. den. 451 U.S. 994 (1981), certiorari

was denied in a case in which the Fifth Circuit Court of Ap-

peals, consistent with its LeBeouf opinion, 621 F.2d 787

(1980), concluded that the towing vessel was not a third

party for purposes of the spilling vessel’s §1321 (f) (I)

defense. In dissenting from the denial of certiorari, Justice

Rehnquist observed:

Insurance policies and contracts, unlike actual

collisions, are frequently matters which are

entered into consensually for a period of months

14

or years in reliance upon one or another con-

struction of applicable law. This factor is suffi-

ciently important that when combined with the

recognized importance of the enterprise being con-

ducted and the evil at which the legislation is aim-

ed to justify the Court granting certiorari and giv-

ing the issue plenary consideration at this time.

The purposes which Congress intended in enacting

FWPCA will be substantially advanced if this Court

resolves the anomaly so clearly apparent in BIG SAM.

CONCLUSION

BIG SAM, in ignoring the tonnage limitation of

subsection (g), destroys the balance intended by Congress

in making the subsection (g) third party the surrogate of

the subsection (f) spilling vessel. The impact of BIG SAM

is compounded by the difficulties which the lower courts

have experienced in deciding who is and who is not a third

party. The compelling need for clarification by this Court is

apparent.

RESPECTFULLY SUBMITTED,

SHELDON A. VOGEL

40 Wall Street

New York, New York 10005

and

HENRY J. READ

18th Floor, First NBC Building

New Orleans, Louisiana 70112-1799

(504) 561-8989

Attorney for Amicus Curiae

Water Quality Insurance Syndicate

15

OF COUNSEL:

THACHER, PROFFITT & WOOD

and

MONTGOMERY, BARNETT, BROWN & READ

A-l

APPENDIX “A”

Section 12(f)(l) of the Senate bill which corresponds to 33

U.S.C. §1321(f):

Except where an owner or operator can prove

that a discharge was caused solely by (a) an act of

God, (b) an act of war, (c) negligence on the part of

the United States Government, or (d) an act of

third party, such owner or operator of any vessel

from which oil is discharged, or which causes the

discharge of oil...shall, notwithstanding any other

provision of law, be liable to the United States

Government for the actual cost incurred under

subsection (e) for the removal of such oil by the

United States Government in an amount not to

exceed $125 per gross ton of such vessel or $14

million, whichever is lesser, except that where

such discharge was the result of negligence or a

willful act, such owner or operator shall be liable

to the United States Government for the full

amount of such costs. Report of Senate Commit-

tee on Public Works No. 91-351 at p. 105 (1969).

A-2

APPENDIX “B”

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

In the Matter

of

MEMORANDUM OPINION

AND ORDER

78 Civ. 3552(ADS)

The Complaint of Berkley Curtis Bay Co. and

Moran Towing & Transportation Co., Inc.,

as Owner and Bareboat Charterer, Respectively of

Tug GRACE MORAN, for Exoneration from or

Limitation of Liability.

(Filed Feb. 14, 1983)

APPEARANCES:

BURLINGHAM, UNDERWOOD & LORD

One Battery Park Plaza

New York, New York 10004

Of Counsel: Kenneth H. Volk, Esq.

‘Terry L. Stoltz, Esq.

Lucas E. Andino, Esq.

—Attorneys for Berkley Curtis Bay Co. and

Moran Towing & Transportation Co., Inc.

BIGHAM, ENGLAR, JONES & HOUSTON

14 Wall Street

New York, New York 10005

Of Counsel: Louis G. Juliano, Esq.

Lawrence B. Brennan, Esq.

—Attorneys for American Dredging Co.

A-3

J. PAUL MCGRATH, Ass’t Attorney General

JOHN S. MARTIN, Jr., U.S. Attorney

Janis G. Schulmeisters, Attorney in Charge

Torts Branch, Civil Division

U.S. Dep’t of Justice

26 Federal Plaza, Suite 36-100

New York, New York 10278

—Attorneys for the United States

ABRAHAM D. SOFAER, D.J.:

On July 31, 1978 the tug Grace Moran and its tow

the dredge Pennsylvania ran aground on a shoal off

rockaway Point known as Louie’s Hump. The Penn-

sylvania subsequently sank and became a total loss.

Members of its crew allegedly suffered personal injuries,

and the United States spent $235,000 to clean-up oil which

spilled from the dredge’s fuel tanks. Following ten days of

trial and one day of argument, this Court denied a petition

to exonerate or limit the liability of Berkley Curtis Bay Co.

and Moran Towing & Transportation Co., respectively the

owner and the bareboat charterer of the Grace Moran

(hereinafter collectively referred to as ‘‘Moran’’). The Court

further found Moran 65% at fault and American Dredging

Company (hereinafter ‘‘ADC”’), the owner of the dredge

Pennsylvania, 35% at fault for all damages resulting from

the accident, including the expenses incurred by the

United States in cleaning up the oil spill.

Following appeals by the various parties, the case

has been remanded by the Second Circuit for two purposes:

first, to determine whether ADC may claim that Moran’s

breach of a warranty of workmanlike service (‘‘WOWS”)

precludes ADC liability and, if so, whether that claim has

merit; second, to clarify whether and to what extent Moran

A-4

may be held liable for the government's oil-spill cleanup ex-

penses under § 1321 of the Federal Water Pollution Control

Act (“FWPCA”), 33 U.S.C. §1321.

I,

ADC’s claim concerning Moran's breach of WOWS

was not preserved in the form that it was asserted on ap-

peal. ADC did not claim at trial that Moran's breach entitl-

ed it to recover irrespective of its own negligence. This

Court—and all the parties including ADC—treated the

breach of WOWS claim during and after the trial as an ad-

ditional argument against Moran’s petition to avoid or

limit its liability. The Court found Moran liable without

limitation on other grounds and, accordingly, did not men-

tion the WOWS claim in its oral opinion. Although the

Court invited corrections to its opinion, ADC did not ob-

ject to the Court’s failure to divine ADC’s allegedly

broader purpose from its pretrial submissions. See Desert

Palace, Inc. v. Salisbury, 401 F.2d 320, 323-24 (7th Cir.

1968).

Appeals based on claims and defenses that were

pleaded but not properly pursued in the trial court’’ should

not be allowed except in the most extraordinary cir-

cumstances to prevent a miscarriage of justice. Broadway

Delivery Corp. v. United Parcel Service, 651 F.2d 122, 126

(2d Cir. 1981). There is no miscarriage of justice in not

allowing ADC to attempt to avoid liability for its share of

fault for the damages in this case.

ADC’s assertion that Moran’s breach of WOWS

precludes ADC liability is tenuous under existing law. In

Fairmont Shipping Corp. v. Chevron International Oil Co.,

Inc., 511 F.2d 1252, 1260 (2d Cir. 1975) the Second Circuit

A-5

suggested that a tow could not be heid liable for con-

tributory negligence (short of active hindrance’’) once it

was established that damages had been caused in part by a

tug’s breach of WOWS. In Navieros Oceanikos, S.A. v.

S.T. Mobile Trader, 554 F.2d 43, 46-47 (2d Cir. 1977),

however, the Circuit Court held that a breach of WOWS

does not generally preclude consideration of a plaintiff's

contributory negligence. Navieros did suggest in dicta

that, where personal injury damages exposed a plaintiff to

liability without fault under the unseaworthiness doctrine,

WOWS doctrine might require indemnification regardless

of the plaintiff's own fault. 554 F.2d at 46-47; see Gaymon

v. Prudential Lines, Inc., 473 F.Supp. 161, 164-65

(S.D.N.Y. 1979). ADC’s reliance on this suggestion in

Navieros is questionable, however, given recent

developments in maritime law. The fact that ADC might

be strictly liable to injured seamen hardly justifies a rule

that would allow it to avoid completely its own fault. The

Supreme Court’s decision in United States v. Reliable

Transfer Co., 421 U.S. 397 (1975) plainly condemns such a

rule by its emphatic declaration that damages in admiralty

should be allocated in accordance with fault. 421 U.S. at

410-11; see Hanover Insurance Co. v. Puerto Rico

Lightrage Co., 553 F.2d 728, 730 & n.3 (1st Cir. 1977); Note,

Towage Accidents and the Implied Warranty of

Workmanlike Service: A New Strict Liability?, 10 Ga. L.

Rev. 794, 815 (1976).

The nature of ADC’s faults, moreover, makes ADC's

possible avoidance of its share of liability particularly un-

just. Under the WOWS indemnity theory urged by ADC,

ADC could be held liable only if its faults constituted ‘‘ac-

tive hindrance. The seriously negligent omissions of ADC

do not appear to constitute active hindrance as that con-

cept has been interpreted. See Rodriguez v. Olaf Peder

A-6

sen's Rederi A/S, 527 F.2d 1282 (2d Cir. 1975), cert. denied,

425 U.S. 951 (1976); Albanese b. N. V. Nederlande Amerik

Stoomy. Maats, 346 F.2d 481 (2d Cir.), rev'd on other

grounds, 382 U.S. 283 (1965). But ADC’s omissions may

have had even more serious consequences than many

forms of active hindrance’’; its omissions (i.e. the crew's

failure to warn of the shoal and of the need to prevent

resumption of tow as well as the dredge’s open doors and

lack of compartments) made what would have been a

serious accident into an unsalvageable disaster. Moreover,

the dredge was unseaworthy because of its lack of a valid

certificate for oceangoing operations under 46 CFR §

90.05-25. This omission constituted a statutory violation,

and the Second Circuit has emphasized that limitations on

liability resulting from such violations are strongly

disfavored. Tug Ocean Prince, Inc. v. United States, 584

F.2d 1151, 1160 (2d Cir. 1978), cert. denied, 440 U.S. 959

(1979).

In sum, ADC did not properly preserve the issue of

WOWS indemnification at trial, and a miscarriage of

justice will not occur by denying ADC the right to raise

this issue at this time. Current law is unlikely to sanction

WOWS indemnification, and, in any event, such indem-

nification would lead to a particularly unjust result given

ADC’s various omissions, including its failure to obtain a

valid certificate for oceangoing operations.

II.

At trial the Court held Moran liable to the govern-

ment for its share of the United States’ oil-spill cleanup ex-

penses under § 1321(g) of the FWPCA. Subsection (g),

which the government urged at trial as the appropriate

provision, applies only to sole-cause, third (i.e. non-

A-7

discharging) parties. Moran was held only 65% at fault for

the oil spillage in this case and cannot, therefore, be held

liable under subsection (g). The only provision under which

Moran may be held liable is § 1321(h)(2), which preserves

for the government nonstatutory remedies against third

parties involved in oil spills. Among the remedies preserv-

ed by subsection (h)(2) is the government’s right to hold a

vessel and its owner jointly and severally liable for

negligent oil pollution. United States v. M/V Big Sam, 681

F.2d 432, 443, reh’g denied, 693 F.2d 451 (5th Cir. 1982)

(authorities collected).

The threshold issue with regard to Moran’s liability

to the United States under § 1321(h)(2) concerns Moran’s

claim that the question of its liability under FWPCA is

“‘moot’’. Moran asserts that § 1321 contains a hierarchy of

remedies for government recovery of the costs of an oil-

spill cleanup. According to Moran’s argument, the prefer-

red remedies in this hierarchy are found in § 1321(f) and §

1321(g), which respectively provide for discharger and sole-

cause third party strict liability; so long as either of these

remedies will afford the United States complete reimburse-

ment, the remedies preserved by subsection (h)(2) should

not be employed. Thus, Moran claims, because the govern-

ment’s claim for $235,000 is less than ADC’s $300,000

limitation fund under §1321(f), the issue of Moran liability

under subsection (h)(2) is moot“.

This claim is negated by the plain language of

subsection (h)I 2): The liabilities established by this section

shall in no way affect any right...the United States Govern-

ment may have against any third party whose actions may

in any way have caused or contributed to the discharge of

oil or hazardous substance. 33 U.S.C. § 1321(h)(2) (em-

phasis added). Moran’s reliance on United States v. Bear

A-8

Marine Services, 509 F.Supp. 710, 716-18 (E.D.La. 1980) is

not persuasive. In Bear Marine, the District Court careful-

ly described the purposes and provisions of § 1321 in deny-

ing a third party’s motion to dismiss the government's

claim for oil-spill cleanup costs brought under maritime

tort doctrines preserved by subsection (h)(2). Although

silent as to whether the discharger’s limitation fund was

less than the government’s reimbursement claim, the opi-

nion plausibly asserts that subsection (h)(2)’s preservation

of nonstatutory remedies was designed to assure the

government an alternative source of reimbursement in the

event either of the limited liability remedies provided by

subsections (f) or (g) proved inadequate. Language in the

opinion further suggests that, in light of this statutory

design, only those costs not covered by sources available

under subsections (f) or (g) may be recovered under the

remedies preserved by subsection (h)(2). Bear Marine, 509

F.Supp. at 718-19. Such a limitation on the availability of

remedies preserved by subsection (h)(2) should not,

however, be read into §1321. Although Congress may have

preserved nonstatutory remedies in order to assure full

government reimbursement in the event the statutory

remedies proved inadequate, Congress did not tailor its

preservation of nonstatutory remedies to that purpose. As

noted, Congress specifically stated that the statutory

remedies in no way affect! existing nonstatutory

remedies against third parties.

Moreover, there is no compelling reason why the

nonstatutory remedies preserved by § 1321(h)(2) should be

unavailable to the govnment whenever the statutory

remedies provided by subsections (f) or (g) are adequate.

The United States may prefer to move under subsections

(f) or (g) in many cases, inasmuch as those strict-liability

provisions do not require proof of negligence; if, however,

A-9

as in this case, a determination of negligence has already

been made as to a third party, there is no reason not to

allow the government to proceed separately against the

negligent third party for its share of liability under

maritime tort doctrines preserved by subsection (h)(2). In-

deed, in this case it seems especially appropriate to allow

the government to hold Moran, which was 65% responsible

for the oil-spill in question, jointly and severally liable with

ADC, which was only 35% responsible for the oil-spill. (Of

course, if the government elects to demand reimbursement

from either ADC or Moran for more than its share of fault,

the party that pays for more than its share of fault will

have an action for contribution from the party that pays

for less than its share of fault.)

The second issue concerning Moran’s liability to the

United States under subsection (h)(2) is whether that

liability is limited by the tonnage formula expressly pro-

vided in subsection (g) for strictly liable, sole-cause third

parties. This issue has been recently and very thoroughly

explored by the Fifth Circuit in United States v. M/V Big

Sam, supra, which concluded that a third party’s liability

for negligence under principles of maritime tort preserved

by subsection (h)(2) should not be affected by the limitation

provision of subsection (g). Without needlessly repeating

the detailed analysis contained in Big Sam, the plain

language of subsection (h)(2) does not call for a judicial

transplant of the limitation on strict liability in subsection

(g) to the negligence liability of third parties unrestrictedly

preserved by subsection (h)(2). See Big Sam, 693 F.2d at

454-56 (discussing recent Supreme Court authority on the

need to avoid unnecessarily creative judicial interpreta-

tions of unambiguous statutory language). Limiting the

liability of all dischargers (subsection (f)), as well as strictly

liable, sole-cause third parties (subsection (g)), while not

A-10

limiting the liability of negligently liable third parties, is

not so illogical or irrational as to require judicial

reconstruction of §1321. See Big Sam, 693 F.2d at 453 n. 5

& 454 n. 8.

Moran incorrectly suggests that under this reading

of the statute it will be held liable without limitation only

because it was not the sole cause of the oil-spill and thus

did not qualify for liability limitation under subsection (g).

See Moran Memorandum of Law (Dec. 16, 1982) 18. If the

statutory language required such a reading, the language

might well be deemed sufficiently illogical and irrational to

require judicial reinterpretation. It is difficult to imagine

any reason why a negligent party 100% responsible for an

oil-spill shouldbe entitled to a liability limitation

unavailable to a negligent party 65% at fault. The

language of § 1321, however, does not require such a

reading. A sole-cause, negligent third party may be held

liable without limitation under subsection (h)(2) to the same

extent that a contributing-cause, negligent third party

may be; indeed, the defendant in Big Sam was just such a

negligent, sole-cause third party liable under both subsec-

tion (g) and subsection (h)(2). See 681 F.2d at 442.43.

A final difficulty concerning Moran’s liability under

§ 1321(h)(2) is this Court’s original finding that Moran is

not a “third party” under § 1321(f). Transcript of Trial

1162. In its appellate brief Moran urged that this finding

precluded holding it liable as a third party under 8

1321(h)(2). Moran Appellate Reply Brief (May 21, 1982) 21.

The Court of Appeals noted this apparent anomaly in its

statement remanding this case. Moran’s briefs on remand

to this Court, however, do not mention the argument. This

Court’s finding concerning Moran’s status under § 1321(f)

wes significant only insofar as ADC could have otherwise

A-11

avoided its strict liability as discharger by invoking the ex-

ception in subsection (f) for oil spills caused solely by a

“third party. The Court’s finding concerning AC's 35%

responsibility for the oil spill, however, precluded AdC

from avoiding liability under any of the exceptions in

subsection (f). In short, the finding that ADC was 35% at

fault made the finding that Moran was not a third party”’

under § 1321(f) irrelevant. Thus the propriety of incon-

sistently reading third party”’ in different subsections of

§ 1321 is not at issue here because only the use of the term

in subsection (h)(2) is involved.

Moran is undoubtedly a third party under subsection

(h)(2). As detailed in opinions by the Fifth and First Circuit,

a narrow reading of the sole-cause third party exception

in § 1321(f) is justified by the statute’s purpose of assuring

government reimbursement for clean-up costs by holding

discharging vessels strictly liable. See United States v.

LeBeouf Bros. Towing Co., 621 F.2d 787 (5th Cir.) ren g

denied, 629 F.2d 1350 (1980), cert. denied, 452 U.S. 906

(1981); Burgess v. M/V Tamano, 564 F.2d 964, 981-82 (1st

Cir. 1977) cert. denied, 435 U.S. 941 (1978). This purpose is

not served by narrowly construing the reference to third

party” in g 1321(h)(2); rather, a broad construction of the

term in subsection (h)(2) serves the purpose of the statute

in the same way a narrow reading of the term in subsection

(f) does: by providing another source from which the

government may attempt to procure reimbursement for

clean-up expenses.

III.

In conclusion, ADC may not assert a WOW S claim

as a means of avoiding liability for its share of fault, and

Moran and the tug Grace Moran may be held jointly and

A-12

severally liable to the government without limitation under

§ 1321(h)(2). No costs to any party. The parties are directed

to submit a judgment within 10 days incorporating amend-

ments to the Court’s previous judgment that are indicated

by this Order.

SO ORDERED.

Dated: New York, New York

February 11, 1983

ABRAHAM S. SOFAER

U.S. DISTRICT JUDGE