Fifth Circuit Vacates District Court's Unprecedented Decision to Lift Stay in a Limitation Action Without a Proper Stipulation

In its recent ruling, the U.S. Court of Appeals for the 5th Circuit reined in the District Court for overstepping its authority to lift a stay in a maritime limitation of liability action.

The case, In re Devall Towing & Boat Services of Hackberry, LLC, involved a deckhand, Jason Lanclos, who worked aboard the M/V KENNETH J. DEVALL, owned by Devall Towing & Boat Services of Hackberry, LLC. He sustained injury while trying to break the tow of the M/V ZELAND M. DELOACH. JR, owned by Deloach Marine Services, LLC. As a result of this incident, both Devall Towing and Deloach Marine filed complaints in federal district court under the Limitation Act. Lanclos also filed suit against both companies in Louisiana state court.

The District Court then entered an order restraining prosecution of all claims against Devall Towing and Deloach Marine. This stayed Lanclos’ state court suit. Lanclos moved to lift the stay by stipulating that he would not seek judgment in excess of the value of the limitation fund or assert res judicata. Devall Towing, who also asserted a claim in Deloach Marine’s limitation complaint, would not agree to this stipulation.

At the hearing on Lanclos’ motion, the District Court adopted an unprecedented approach. It entered a revised order that enjoined all parties from prosecuting claims, but it allowed the parties to proceed with discovery, pretrial matters, and an actual trial on the merits in Lanclos’ state court suit. But the revised order stopped the parties from enforcing any judgment rendered by the state court or asserting res judicata, meaning the District Court would not be bound by the outcome of Lanclos’ state court suit. Both Devall Towing and Deloach Marine appealed.

On appeal, the 5th Circuit noted that there are only two instances in which a district court can lift a stay and allow claims to proceed outside of a limitation action. Those two instances are:

• When the total amount of the claims does not exceed the limitation fund
• When all claimants stipulate that the federal court has exclusive jurisdiction of the limitation action and they will not seek to enforce a damage award greater than the limitation fund until the right to limitation has been resolved by the federal court

The 5th Circuit’s precedent is clear that the district court abuses its discretion when it allows a state court action to proceed absent either of these two instances. Here, Devall Towing was a claimant against Deloach Marine but did not agree to a stipulation such that the stay should not have been lifted. When neither of the two instances exist, the shipowner’s right to limitation takes precedence over the claimant’s right to process in the forum of their choice. As such, the 5th Circuit vacated the District Court’s revised order and noted that the District Court was bound to stay all proceedings.

Please contact any member of Phelps’ Marine and Energy team if you have questions or need compliance advice and guidance.