By Blake Crohan

In In the Matter of 4-K Marine, No. 18-30348 (5th Cir. Jan. 30, 2019) the U.S. Fifth Circuit held that the owner of a stationary, “innocent” vessel is not entitled to reimbursement of the medical expenses of an employee who fraudulently claimed his preexisting injuries resulted from an allision. In June 2015, the M/V TOMMY, owned and operated by Enterprise Marine, was pushing a flotilla of barges on the Mississippi River when it allided with the MISS ELIZABETH, a stationary tug with barges owned and operated by CBR. Individuals aboard the MISS ELIZABETH, including Prince McKinley, alleged they were injured in the allision. CBR promptly commenced maintenance and cure payments to McKinley.

After suit was filed, CBR filed a counter-claim against Enterprise Marine for reimbursement of the amounts it paid to McKinley for medical expenses, because generally, an at-fault third party must reimburse a Jones Act employer for maintenance and cure paid to its Jones Act employee. CBR paid, and Enterprise Marine reimbursed, $23,000 in maintenance and $5,000 in cure to McKinley. CBR also agreed to pay for McKinley’s back surgery, but Enterprise Marine reviewed McKinley’s medical history and refused to reimburse those expenses, arguing the condition was not a result of the allision.

After a bench trial, the district court determined that McKinley injured his knee in the allision, but his back problems predated the accident and were unaffected by the allision. Further, the court held that McKinley fraudulently withheld material issues about his pre-existing medical conditions and medications before and after the incident. The district court held that CBR had no obligation to pay for McKinley’s back surgery, and Enterprise Marine had no obligation to reimburse CBR for the back surgery.

CBR appealed to the U.S. Fifth Circuit arguing that maritime principles compelled Enterprise Marine to reimburse CBR for McKinley’s back surgery regardless of McKinley’s fraud. The U.S. Fifth Circuit explained that a third-party must reimburse maintenance and cure payments only where its negligence caused or contributed to the need for maintenance and cure. Because McKinley’s back condition did not result from the allision, Enterprise Marine did cause or contribute to the need for maintenance and cure for that particular medical problem. Accordingly, Enterprise Marine did not owe reimbursement to CBR for McKinley’s back surgery.

The Fifth Circuit recognized the practical problems faced by CBR. It noted that the decision to cover McKinley’s back surgery had to be made early, and CBR was presented with what initially appeared to be a plausible claim for cure. Further, the denial of such claim could have exposed CBR to punitive damages. But the Court noted that CBR had options. An employer need not immediately commence maintenance and cure payments upon request. Further, an employer is only liable for compensatory damages if it “unreasonably rejects the claim” after an investigation, and punitive damages “only for behavior that is egregious”. Finally, CBR had the right to deny payment if, which was ultimately determined, McKinley intentionally misrepresented or concealed material facts, the disclosure of which was desired by CBR.

The U.S. Fifth Circuit’s opinion in In the Matter of 4-K Marine details the harsh realities facing Jones Act employers. Employers must quickly investigate maintenance and cure claims to determine their legal rights. Act too slowly, and the employer may face compensatory or punitive damages. Act too quickly, and an employer may pay for unnecessary medical expenses and not be able to recoup them.

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By Daniel B. Stanton

Contrary to courts across the pond, rare is the case in American courts where attorneys’ fees are awarded to the prevailing party. This notion is often referred to as “the American rule” of each party bearing its own costs. But in Dr. George T. Moench, et al. v. M/V Salvation, et al., no. 12-1536 the United States District Court for the Western District of Louisiana, recently decided to buck the trend and awarded the prevailing party attorneys’ fees and costs in an amount equal to 90% of the underlying judgment. The facts of the case are simple and all too common. At the time of the allision, the M/V SALVATION was standing by awaiting further instructions from Berwick Traffic Control. The SES EKWATA was moored nearby at the facilities of Basin Fleeting, Inc. While standing by, the captain of the M/V Salvation lost control of the vessel, and before he could regain control, the M/V SALVATION and its tow struck and severely damaged the SES EKWATA. The owner of the SES EKWATA brought suit against the owner of the M/V SALVATION.

Unable to settle their differences amicably, the owners of the two vessels proceeded to trial where liability and damages were contested. At the conclusion of trial, the court found the M/V SALVATION to be solely at fault, and because the SES EKWATA was determined to be a constructive total loss, the court awarded its owners what the court determined to be the market value of the vessel and its appurtenances, approximately $322,000.  But in a remarkable move, the court then awarded the owner of the SES EKWATA approximately $295,000 in attorneys’ fees and costs.

In support of its ruling, the court noted that it had the authority to award reasonable attorneys’ fees and costs where the losing party has acted in bad faith, vexatiously, wantonly, or for oppressive reasons. And as representative of this behavior, the court cited what it deemed insufficient expert testimony and unrealistic defenses to liability offered by the owner of the M/V SALVATION. Specifically, the court concluded that the owners of the M/V SALVATION “knew the extent of its liability based on the circumstances of the case and the actions of its captain.” The court also chastised the party for the presentation of expert witnesses to testify to the value of the SES EKWATA that were less than qualified in the court’s eyes. Taken together, the court found the defenses presented and expert testimony offered by the owner of the M/V SALVATION to be “disingenuous and abusive to the legal process.”

Whether the district court’s decision stands remains to be seen as it has been appealed to the United States Fifth Circuit. But regardless of the outcome on appeal, the opinion serves as a reminder of the inherent powers of district court. And as part of that power, a district court may grant the successful party attorneys’ fees and costs regardless of the prevailing American rule. While this power is infrequently exercised, it should not be forgotten.