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A Solution to the Single-Claimant Stipulation Problem – Roen Salvage Company v. Sarter

On Behalf of | Jan 17, 2022 | Midwest Maritime Lawyer

The stipulation preceding the district court’s stay of a limitation proceeding involving a single claimant is both simplistic formulism and the cause of prolonged headaches for maritime attorneys and courts. Too often attorneys treat the stipulation as being essentially outcome determinative, drafting redlines with bloated language designed to avoid every imagined loophole and seeking to reconfirm—or even invent—the legal rights under dispute. As always, the victims of excessive drafting and arguments aren’t attorneys, but their clients, who pay for it directly through fees or indirectly through prolonged delay.

This issue underscores Roen Salvage Company v. Sarter, a recent Seventh Circuit decision authored by Judge Easterbrook.[2] In a refreshing analysis, the court reasoned that the single-claimant “stipulation”—itself considered a misnomer—is simply unnecessary. It concluded that the parties’ respective rights arise from and are constrained by federal statute. In other words, through a “concession”—the court’s preferred term—the single claimant can concede, for example, that she will not invoke res judicata in an effort to recover more than the limitation fund, but that concession is not the vehicle preventing her from excess recovery. That vehicle is the Limitation of Liability Act of 1851 (“LOLA”) itself,[3] and according to Judge Easterbrook, it’s up to the court, not the parties, to secure the right.

Lewis & Clark Marine

 The modern single-claimant stipulation stems from the Supreme Court’s balance of two seemingly competing federal statutes in Lewis & Clark Marine.[4] The first statute is the Judicial Act of 1789, which under its modern codification states, in relevant part, that:

The district courts shall have original jurisdiction, exclusive of the courts of the State, of:

(1) Any civil case of admiralty or maritime, saving to suitors in all cases all other remedies to which they are otherwise entitled.[5]

The savings-to-suitors clause means that a plaintiff may preserve his right to a jury— a right not allowed in admiralty—by commencing a lawsuit in state court, or in federal court if there’s an independent basis for jurisdiction like diversity.[6] Most courts have also held that admiralty jurisdiction does not present an independent basis for removal from state court.[7]

The competing statute is LOLA, which provides a shipowner the following right under federal law:

[T]he liability of the owner of a vessel for any claim, debt, or liability … shall not exceed the value of the vessel and pending freight.”[8]

The statute is competing because, as LOLA also dictates, a shipowner may exercise its right in federal court through the following federal jurisdiction clause:

The owner of a vessel may bring a civil action in a district court of the United States for limitation of liability under this chapter.[9]

Therein lies the rub. In a maritime accident involving a single injured party with claims against a shipowner, both that claimant and the shipowner have a statutory right to commence an action in the forum of their choosing.[10]

The Supreme Court in Lewis & Clark Marine resolved this conflict by holding that an injured party can adjudicate his case in state court “so long as the vessel owner’s right to seek limitation of liability is protected.”[11] The holding is straightforward, with the takeaway being that both statutes should be enforced if possible. At its narrowest, this means that a single claimant is entitled to bring her claim in state court if the district court stays the limitation proceeding—and the dormant statutory right to limitation—which the shipowner may lift if it must later exercise that right. And there’s of course no need to lift the stay if the plaintiff loses in state court or if the jury awards less than the asserted limitation fund.

But unfortunately for future litigants, many courts have not read Lewis & Clark Marine so narrowly. These courts instead highlight the Supreme Court’s statement that, in the case before it, the shipowner’s “rights were protected by [the plaintiff’s] stipulation that his claim did not exceed the limitation fund, [the plaintiff’s] waiver of any defense of res judicata with respect to limitation of liability, and the District Court’s decision to stay the Limitation Act proceedings pending state court proceedings.”[12] More directly, later courts invoke the “stipulation” as a putative basis for protecting the shipowner’s rights, even holding that certain terms are necessary before the court will issue a stay.[13]

This approach is inherently problematic because it requires attorneys to work together and agree. Let’s be blunt. That’s what “stipulation” means.[14] There is always that lawyer who argues something like, “sure, the stipulation needs to say that, but my client requires that it also say X, Y, and Z.” For example, a few years after Lewis & Clark Marine, a shipowner argued that, in addition to what the Court mentions in that decision, the stipulation must also stipulate to the amount of the limitation fund.[15] The Fourth Circuit rejected this argument, but only after what was undoubtedly extensive cost and delay.[16]

Roen Salvage Company

Perhaps no case better exemplifies the problems of excessive argument and waste over the single-claimant stipulation than Roen Salvage Company v. Sarter. But the court also offers a way forward. In Roen Salvange, a man tragically drowned after being thrown from a vessel in rough waters on Lake Superior near Duluth, Minnesota.[17] After receiving notice of a claim, Roen, the owner of the vessel, filed a limitation action in federal court, which prompted the court to issue an injunction.[18] In response, the single claimant—the decedent’s widow—filed a motion to lift the injunction and stay the proceedings so she could sue in state court.[19] In doing so, she filed a proposed stipulation that included the following terms:

Claimant further stipulates that she consents to waive any claim of res judicata relevant to the limitation of liability issue based on any judgment that the state court or any other court may render.

Claimant stipulates that she will not seek any other federal or state court to enter any judgment or ruling on the issue of Petitioner’s right to limitation of liability and that this court has exclusive jurisdiction to decide this issue.

This stipulation does not stipulate that Petitioner may bring the exoneration issue back to this federal court after trying issues of liability and damages in state court.

However, Claimant stipulates that she will not seek to enforce any excess judgment or recovery in so far as it may expose the ship owner, Roen, to liability in excess of the stated value in the pending adjudication of the Complaint of Limitation of Liability, until the limitation issue is decided by this court.[20]

Most of this language should seem familiar because it mirrors the stipulation blessed by the Supreme Court in Lewis & Clark Marine. But the third paragraphs suggests that Roen demanded something more. Not only did Roen take the dubious position that it had a right to litigate the issue of exoneration in federal court after a state court judgment, but apparently Roen also demanded that the claimant agree that it had such a right. And Roen’s demands did not end there. For reasons that I cannot understand, it also argued that the claimant must designate the state court in which she plans to file.[21]

The district court correctly rejected Roen’s arguments and granted the stay.[22] But that’s not the full story. Lost in the filings are why parties feel compelled to raise these arguments within the context of a stipulation. Assuming it existed, a shipowner’s right to “exoneration” in federal court would stem solely from LOLA. It’s a statutory question. In what other context do we ask a court to compel someone to formally concede to an adverse party’s putative statutory right by stipulation? The flaw becomes worse when you consider that Roen Salvage argued the merits of its position through this motion, with the remedy being that the court should compel the claimant to formally agree to its decision on the merits. Why should a court or adverse party care about that? The shipowner’s frivolous argument about the claimant being required to identify the state court only takes this flawed premise further down the line into absurdity.

Roen’s flawed and wasteful motion could have been chalked up to misplaced aggressiveness. But unfortunately, as we already know, Roen appealed the district court’s decision to lift the stay to the Seventh Circuit. In short, the issue of whether a claimant must agree to a right that she has no authority to decide would now tie this litigation down for another year, with only the costs and fees of briefing in the meantime. It’s even worse than that. Before noticing the appeal, Roen moved the district court to stay its order while an appeal was pending.[23] Another motion to brief and argue. In the end, the district court swiftly denied that motion because “Roen has little likelihood of success on appeal.”[24]

Roen did not take the hint. But like with the district court, the story from the Seventh Circuit’s opinion goes beyond the inevitable outcome. There are four key takeaways. First, there’s Judge Easterbrook’s reframing of the underlying premise. When explaining the usual procedure, he writes that “a would-be plaintiff often files a concession (sometimes, though inaccurately, called a stipulation).”[25] While he does not expand, this must be right. Only the claimant must “agree” to anything in the common single-claimant stipulation. Agreements, contracts, and stipulations—synonyms for all practical purposes—require multiple parties and consideration. The so-called stipulation in this scenario is merely a formalized promise by the claimant that she won’t try to do something that is already contrary to law—a concession.

Second, the court rejected Roen’s substantive argument that it has an independent right to litigate “exoneration” in the federal court.[26] Like every prior court, the Seventh Circuit correctly noted that, despite its title under Chapter 305, nothing in LOLA provides for this right.[27] And because it’s a court rule, nothing in Rule F of the Supplemental Rules can provide a basis for federal jurisdiction.[28] Judge Easterbrook could have went further and noted that the shipowner’s position contravenes the savings-to-suitors clause and the Supreme Court’s decision in Lewis & Clark Marine that solidified its application. The savings-to-suitors clause becomes meaningless if the shipowner can nonetheless utilize a federal court sitting in admiralty as a do-over on liability.

Third, Judge Easterbrook addressed the required contents of the so-called stipulation. Here he cut to the chase:

The parties have spent many pages discussing exactly what concessions (by the would-be plaintiff) or stipulations (by the litigants jointly) are necessary to protect the vessel owner’s rights. Our answer is: None.[29]

The court reasoned that Lewis & Clark Marine does not stand for the proposition that a party must stipulate/concede certain issues related to LOLA, only that the parties in that case did.[30] Returning to first principles, Judge Easterbrook reasoned that a shipowner’s limitation rights are already protected by statute, and that litigants “do not need to concede or stipulate that federal statutes will be observed.”[31]

Finally, the Seventh Circuit addressed an alternative to the process where parties write “many pages” arguing over supposedly necessary stipulation language. And that way is through judicial orders that add teeth to the parties’ respective statutory rights:

When lifting or modifying an injunction to permit litigation in state court, a federal district judge should make any provisos that are essential to safeguard the federal right under § 30505(a). The judge could provide, for example, that, if the state court awards damages exceeding the owner’s estimate of the vessel’s worth, then the federal court will determine that value without regard to the state judge’s conclusion.[32]

This seems correct and is certainly more efficient. As shown in Roen, Courts today typically incorporate the so-called stipulation into their orders.[33] But imagine a world where the district court takes arguments under advisement and then, after contemplating the applicable law, adds the relevant legal protections into its order directly? That should sound familiar. While admittedly it may take time, eventually attorneys will stop hassling over precise stipulation language, knowing that it’s not driving their clients’ rights or remedies. This eventuality seems to be what Judge Easterbrook also had in mind:

In the future, district judges should choose appropriate language that will obviate the sort of dispute the parties to this case have had about exactly what words a would-be state-court plaintiff must use in order to protect the vessel owner’s rights.[34]

The Seventh Circuit put district courts on notice that they can help prevent wasteful litigation over single-claimant stipulations by overly cautious or argumentative counsel. Whether courts will take his lead is, of course, another story. This stipulation has undoubtedly become a customary part of LOLA, and traditions are difficult to break. But Roen Salvage Company v. Sarter offers a path forward to a simpler and more efficient process under LOLA. The winners under such a change will be all future parties.

[1]           Robert Dube and Adrian Kipp contributed to this article.

[2]           Roen Salvage Co. v. Sarter, 17 F.4th 761 (7th Cir. 2021).

[3]           46 U.S.C. § 30501 et seq.

[4]           Lewis v. Lewis & Clark Marine, Inc., 531 U.S. 438 (2001).

[5]           28 U.S.C. § 1333 (emphasis added).

[6]           See, e.g., Reliance Nat. Ins. Co. (Europe) Ltd. V. Hanover, 222 F. Supp. 110, 115 (D. Mass. 2002).

[7]           See Langlois v. Kirby Inland Marine, LP, 139 F. Supp.3d 804, 809-10 (M.D. La. 2015) (collecting cases on the issue of whether the 2011 amendment to 28 U.S.C. § 1441 allows for maritime jurisdiction to be an independent basis for removal and concluding that the overwhelming number of jurisdictions say no).

[8]           46 U.S.C. § 30505.

[9]           46 U.S.C. § 30511(a).

[10]          See Lewis, 531 U.S. at 448 (“Some tension exists between the saving to suitors clause and the Limitation Act. One statute gives suitors the right to a choice of remedies, and the other statute gives vessel owners the right to seek limitation of liability in federal court.”)

[11]          Id. at 455.

[12]          Id. at 452.

[13]          See, e.g., In re Tetra Applied Technologies L P., 362 F.3d 338, 341 (5th Cir. 2004) (“Thus, if the necessary stipulations are provided to protect the rights of the shipowner under the Limitation Act, the claimants may proceed in state court.”

[14]          See Stipulation, Black’s Law Dictionary (11th ed. 2019) (“A material condition or requirement in an agreement,” or “A voluntary agreement between opposing parties concerning some relevant point.”)

[15]          Norfolk Dredging Co. v. Wiley, 439 F.3d 205 (4th Cir. 2006).

[16]          Id. at 210-11.

[17]          Matter of Roen Salvage Company, 20-c-915, 2020 WL 7393940 at *1 (E.D. Wis. 2020).

[18]          Id.

[19]          Id.

[20]          Id. at *1-2.

[21]          Id. at *2.

[22]          The district court correctly reasoned that LOLA does not provide an independent right to seek exoneration and that the Fifth Circuit already decided this issue. Matter of Roen Salvage Company, 2020 WL 7393940 at *3. (citing In re Tetra, 362 F.3d at 341). The court also correctly reasoned that parties do not need pre-notify their adversaries of their preferred forum before service, and that issues regarding venue are nonetheless matters of state law that Roen Salvage can always challenge. Id.

[23]          Matter of Roen Salvage Company, 20-c-915, 2021 WL 6033689 (E.D. Wis. 2021).

[24]          Id. at *1.

[25]          Roen Salvage Company, 14 F.4th at 763.

[26]          Id.

[27]          Id.

[28]          Id.

[29]          Id.

[30]          Id.

[31]          Id.

[32]          Id. at 763-64.

[33]          See Matter of Roen Salvage Company, 2020 WL 7393940 at *4 (ordering the parties to execute the proposed stipulation and that the case will be stayed upon receipt of that stipulation).

[34]          Roen Salvage Company, 17 F.4th at 764.

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