The Limitation Act in the United States: A Deeper Look( continued from page 13)
Claims subject to limitation may be allowed to move forward if a claimant— or group of claimants— stipulates that the damages sought are less than the limitation amount or that the claimant( s) will not seek to recover an amount greater than the limitation amount, even if damages in excess of that amount are awarded in another proceeding. In a multi-claimant scenario, all claimants must stipulate that the aggregate value of the total claims asserted against the limitation petitioner will not exceed the limitation amount. Absent agreement of all claimants, no claimant’ s claim may proceed outside of the limitation action. For claims not subject to limitation, the limitation court may exercise its discretion to keep the stay in effect to avoid inconsistencies that may arise from differing results in different litigation.
Disputes Regarding Quantum of the Fund The limitation fund is stipulated by the limitation petitioner and approved by the court when the limitation action is initiated. This timing may result in a fund amount being set without complete information as to the value of the vessel and pending freight. Thus, the limitation fund amount is not set in stone and either the limitation petitioner or a claimant may move the court for an adjustment of the fund amount. When a party moves for modification of the amount, the court may permit discovery on the valuation, pending freight, and other costs and may also conduct a hearing with fact and expert witnesses in order to determine the proper fund amount.
Bifurcating Discovery and Trial The limitation petitioner and / or the claimants may prefer to prosecute the limitation action as a single trial, where damages and liability are dealt with concurrently, or as a bifurcated action, where limitation is considered first and damages second, if needed. Each approach has pros and cons and will be preferable under different circumstances. From a limitation petitioner’ s perspective, bifurcation may be preferred when the expectation of limitation is high. If liability is likely to be limited, minimizing the expense of discovery on damages at the limitation phase will help to streamline overall costs and reduce the risk of costly damages discovery where the issue of damages may ultimately be moot.
But bifurcation is not ideal in all situations. If limitation is unlikely or there is a chance to settle the matter short of trial, conducting discovery on both liability and damages from the outset may help shed light on otherwise opaque damages issues, making settlement discussions possible. Further, bifurcation results in disproportionate expenses being levied on the limitation petitioner in the liability phase, letting the claimants off with minimal expense early on. In some instances, a court may choose to bifurcate trial but still allow discovery of all aspects of the matter. This may help the parties to assess settlement before trial must proceed on phase one liability and limitation issues.
Pleading Limitation as a Defense There are a number of considerations to take into account when deciding whether to hold off on filing an affirmative limitation proceeding and to instead assert limitation as a defense if and when a claim is brought.
If a potential claimant is not considering filing a claim, or is on the fence about doing so, it may be beneficial for vessel interests to avoid drawing a claimant into a lawsuit and engaging in a litigation neither party really wants to be in. Limitation as a defense also does not come with any time limits and thus is not subject to the six-month clock that starts when notice of a claim is given. This puts the onus on the claimant to file any potential claim within whatever applicable time bars would apply to their claim.
There are a number of downsides to the“ wait and see approach.” First, there is no concursus available. This is manageable when only one or two potential claims may arise, but in the event of multiple claimants, being subject to claims in multiple jurisdictions at different times would be burdensome to manage. More substantively, limitation is only available as to each individual claim, without pooling the claims against a similar limitation fund.
There also is the risk of a potential loss of subject matter jurisdiction if a claim is filed in state court. There are some cases holding that a state court lacks jurisdiction to decide limitation because it is traditionally within the exclusive jurisdiction of the federal courts. So even though the Limitation Act expressly permits asserting the right to limit as a defense, it would seem that in limited circumstances if a state court determines it does not have jurisdiction to decide limitation and there is no other basis for removal to federal court, the right to plead limitation could essentially be forfeited. This seems like it would be incorrect as a matter of law, but nonetheless remains a risk.
( continued on page 15)
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