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Water Log 28.3, November, 2008

Appellate Court Finds Operators of Sunken Vessels Fully Liable for Removal Costs

S. Scrap Material Co. LLC v. ABC Ins. Co. (In re S. Scrap Material Co. LLC), 541 F.3d 584 (5th Cir. 2008).

Moses R. DeWitt, 2010 J.D. Candidate, Florida State University School of Law

The United States Court of Appeals for the Fifth Circuit recently held that the Wreck Act supersedes the Limitation of Vessel Owner’s Liability Act (“Limitation Act”), whereby the owner of a sunken vessel is subject to liability with respect to removal costs even if the vessel sank without the owner’s fault or neglect.

Background
Southern Scrap Material Co. (“Southern Scrap”) operated a buoyant dry-dock located on the Inner Harbor Navigational Canal in New Orleans, Louisiana. Hurricane Katrina’s storm surge damaged the dry-dock, sinking it into the Canal on August 29, 2005. The United States Army Corps of Engineers (“the Corps”) determined that the sunken dry-dock needed to be removed because it was a hazard to others navigating the channel.

The Corps contacted Southern Scrap to advise them to remove the hazard, but Southern Scrap did not have the resources to remove it in a timely manner. The Corps then hired an independent construction company to remove the dry-dock at a cost of $8,000,000.

The United States sought to recover the full cost of removal from Southern Scrap. However, Southern Scrap alleged that the Limitation Act restricts its liability to the post-accident value of the dry-dock, which Southern Scrap claims is $316,131.64.

The Limitation and Wreck Acts
Enacted in 1851, the Limitation Act “was designed to encourage investment and protect vessel owners from unlimited exposure to liability” by limiting their liability to the cost of the vessel and its freight, provided that the circumstances giving rise to the damage occurred without the owner’s knowledge or privity.1

Congress enacted the Wreck Act in 1899 to “prevent obstructions in the Nation’s water­ ways.”2 It provided that the “owner85of a vessel sunken in a navigable channel shall commence the immediate removal of the vessel and prosecute the removal dili­ gently, or else be con­ sidered as having abandoned the vessel, subjecting it to re­ moval by the United States.”3 Congress amended the Wreck Act in 1986 to allow recovery of removal costs when the owner of the sunken vessel fails to diligently remove the obstruction, regardless of fault for the sinking.

Litigation
Southern Scrap filed a petition to limit its liability to the post-accident value of the dry dock pursuant to the Limitation Act. The district court issued an order restricting prosecution against Southern Scrap outside of the Limitation Act.

The United States filed a motion requesting that the district court lift the order so that the United States could pursue its claim for the full cost of the removal in accordance with the Wreck Act. The district court granted the United States’ motion, allowing it to bring a claim against Southern Scrap for the actual removal costs outside the restraints of the Limitation Act. Southern Scrap appealed the district court’s holding.

The Appellate Court’s Ruling
The United States Court of Appeals for the Fifth Cir­ cuit found the Limi­ tation and Wreck Acts are in direct conflict with respect to removal costs. The court affirmed the district court’s holding allowing the United States to bring a claim against Southern Scrap for the actual cost of the wreck removal, declaring that “when two statutes irreconcilably conflict, the more recent statute controls.”4

The court looked to the intent of the 1986 amendment to the Wreck Act (“Wreck Amendment”). The Wreck Amendment “permit[s] the United States to hold a non-negligent vessel owner personally liable for the total amount of the governmental removal costs when it fails to remove its sunken vessel.”5

Under the Wreck Amendment, the removal costs can be offset by the salvage value of the wreck, but this is usually significantly less than the cost of removal.6 The court reasoned that allowing Southern Scrap to invoke the Limitation Act would nullify the Wreck Amendment, thereby “violat[ing] the canon of statutory construction that discourages courts from adopting a reading of a statute that renders any part of the statute mere surplusage.”7

Impact of the Decision
This decision will encourage owners to remove sunken vessels in a timely and efficient manner to avoid disrupting navigation. Otherwise, when the owners of sunken vessels fail to promptly remove their vessels, the United States will be able to recover the full cost of removal.

However, the marine industry suggests the decision may discourage investment in buoyant dry-docks and other vessels, especially in those waters more vulnerable to hurricanes and other natural disasters. Nonetheless, environmentalists and those government officials entrusted with disaster mitigation efforts likely will welcome this result.

Endnotes:
1.  See 46 U.S.C. A7 181 et seq. See also Robert Force el al., Admiralty and Maritime Law 699-700 (abridged ed. 2006).
2.  S. Scrap Material Co. LLC v. ABC Ins. Co. (In re S. Scrap Material Co. LLC), 541 F.3d 588 (5th Cir. 2008).
3.  Id.
4.  Id. at 593.
5.  Id. at 594.
6.  Id. at 593.
7.  Id. at 594 (citing Bailey v. United States, 516 U.S. 137, 146 (1995)).

University of Mississippi