Aqua-Marine Constructors, Inc. v. Banks

• Decision Date: 28 March 1997
• Docket Number: AQUA-MARINE,No. 95-36021,95-36021
• Citation: 110 F.3d 663
• Parties: , 97 Cal. Daily Op. Serv. 2266, 97 Daily Journal D.A.R. 4141 CONSTRUCTORS, INC., an Oregon corporation, Plaintiff-Appellee, v. Mike BANKS, individually and d/b/a Mike Banks Company, Defendant; Polaris Insurance Company, Ltd., a foreign corporation, Defendant-Appellant. POLARIS INSURANCE COMPANY, LTD., a foreign corporation, Counter-Claimant-Cross-Claimant-Third-Party Plaintiff, v.CONSTRUCTORS, INC., an Oregon corporation, Counter-Defendant, and Mike Banks, individually and d/b/a Mike Banks Company, Cross-Defendants, and Latham Smith, individually and d/b/a Smith Maritime; The Tugboat Elizabeth II; Pearcy Marine, Inc., a Colorado corporation; Jim Pearcy, an individual; The Tugboat Garnet Banks; The Tugboat John Banks; and Barge 242, Third-Party Cross-Defendants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 663

110 F.3d 663

1997 A.M.C. 1617, 97 Cal. Daily Op. Serv. 2266,

97 Daily Journal D.A.R. 4141

AQUA-MARINE CONSTRUCTORS, INC., an Oregon corporation, Plaintiff-Appellee, v. Mike BANKS, individually and d/b/a Mike Banks Company, Defendant;

Polaris Insurance Company, Ltd., a foreign corporation,

Defendant-Appellant.

POLARIS INSURANCE COMPANY, LTD., a foreign corporation, Counter-Claimant-Cross-Claimant-Third-Party Plaintiff, v. AQUA-MARINE CONSTRUCTORS, INC., an Oregon corporation,

Counter-Defendant,

and

Mike Banks, individually and d/b/a Mike Banks Company,

Cross-Defendants,

and

Latham Smith, individually and d/b/a Smith Maritime; The

Tugboat Elizabeth II; Pearcy Marine, Inc., a Colorado

corporation; Jim Pearcy, an individual; The Tugboat Garnet

Banks; The Tugboat John Banks; and Barge 242, Third-Party

Cross-Defendants.

No. 95-36021.

United States Court of Appeals,Ninth Circuit.

Argued and Submitted Jan. 6, 1997.

Decided March 28, 1997.

Mary Ellen Page Farr, Kell, Alterman and Runstein, Portland, OR, for defendant-appellant Polaris Insurance Company, Ltd.

Joseph L. Gimbrone, Gilson & Heaton, San Diego, CA, for defendant-appellant Polaris Insurance Company, Ltd.

Karen O'Kasey, C. Kent Roberts, Schwabe, Williamson & Wyatt, Portland, OR, for plaintiff-appellee Aqua-Marine Constructors, Inc.

Appeal from the United States District Court for the District of Oregon, Helen J. Frye, District Judge, Presiding. D.C. No. CV-92-1161-HJF.

Before PREGERSON and THOMAS, Circuit Judges, and REED, Jr., ^* District Judge.

EDWARD C. REED, Jr., District Judge:

Introduction

Polaris Insurance Company appeals the order of the district court granting summary judgment in favor of Aqua-Marine Constructors, in Aqua-Marine's action against Polaris on a surety bond executed by Michael Banks and Polaris in favor of Aqua-Marine.

I. Facts

Aqua-Marine Constructors, an Oregon corporation, owns an oceangoing barge, the "Aqua 242." In May 1992 Aqua-Marine entered into a bareboat charter agreement with Michael Banks, a resident of California. Under the terms of the charter party, Banks was to take possession of the barge at Everett, Washington, make monthly charter hire payments in the amount of $24,000.00, and redeliver the barge to Aqua-Marine at Everett. The charter party obligated Banks to at least three months' hire, and further required him to obtain a bond securing the payment of the charter hire and the proper redelivery of the barge at the termination of the charter period. ¹ Banks did obtain a performance bond which he and Polaris Insurance Company executed on May 15, 1992, in favor of Aqua-Marine. ² Polaris is an insurance carrier incorporated under the laws of the Republic of Costa Rica.

By the beginning of August 1992, Banks was in default of his obligation to make charter hire payments. At some point the barge apparently came into the possession of "Latham Smith," a towage operator, without Aqua-Marine's approval. ³ Smith recorded a lien against the barge, presumably for nonpayment of services rendered the Aqua 242, and caused the vessel to be arrested by federal marshals in Charleston, South Carolina, on August 17, 1992.

The shipowner, Aqua-Marine, demanded that Banks' surety, Polaris Insurance, rescue the barge, make redelivery of the barge to Aqua-Marine, and pay Banks' charter hire arrears. Polaris refused, on the grounds (1) that its obligations under the performance bond had been suspended, and coverage canceled, in July 1992, after Michael Banks failed to tender his premium payments and (2) that Banks had never tendered the collateral required by the terms of the performance bond, thereby reducing Banks' coverage to zero.

II. Proceedings Below

In September 1992 Aqua-Marine sued both Banks and Polaris in an Oregon federal court, alleging diversity jurisdiction. On August 5, 1993 Polaris filed an answer and cross-complaint, alleging admiralty jurisdiction.

An Oregon insurance statute requires an insurance carrier not certified to do business in Oregon to deposit funds into court to abide a future judgment before filing any defensive pleadings in a civil action against it. On December 9, 1993, the district court, relying on this statute, struck Polaris' answer and cross-complaint, and ordered Polaris to deposit $150,000.00 in court. Polaris appealed the district court's ruling; that appeal was dismissed by this court for want of jurisdiction. Polaris refused to make the deposit, and on August 1, 1994 was cited for contempt. On September 7, 1995 the district court granted Aqua-Marine's motion for summary judgment, and entered judgment in favor of Aqua-Marine, and against Polaris and Banks. On October 3, 1995 Polaris instituted this appeal from the judgment of the district court.

III. Discussion

Polaris assigns as error the district court's choice of law and its construction of several Oregon insurance statutes. These assignments of error involve purely legal questions; our review of the district court's rulings is therefore de novo. Brannan v. United Student Aid Funds, Inc., 94 F.3d 1260, 1262 (9th Cir.1996) (district court's statutory construction reviewed de novo ); Jenkins v. Whittaker Corp., 785 F.2d 720, 724 (9th Cir.) (district court's choice of law reviewed de novo ), cert. denied, 479 U.S. 918, 107 S.Ct. 324, 93 L.Ed.2d 296 (1986).

A. Preemption

Polaris argues that the performance bond is a maritime contract, and that therefore any dispute arising out of the contract must be resolved purely by reference to federal maritime law; Polaris maintains, essentially, that to the extent Oregon's insurance statutes purport to apply to maritime insurance contracts, they are preempted by federal maritime law. Aqua-Marine, for its part, contends that the performance bond is not a maritime contract at all, or if it is, that the Oregon insurance statute nevertheless governs its action against Polaris.

The question whether the performance bond is a maritime contract is irrelevant for the purpose of determining whether Oregon's bond requirement statute is preempted by federal maritime law: Under Wilburn Boat Co. v. Fireman's Fund Insurance Co., 348 U.S. 310, 75 S.Ct. 368, 99 L.Ed. 337 (1955), disputes over maritime insurance contracts may be governed by state law, in the same manner as non-maritime insurance contracts, as long as the state law does not clearly conflict with federal maritime law. See Askew v. American Waterways Operators, Inc., 411 U.S. 325, 341, 93 S.Ct. 1590, 1600, 36 L.Ed.2d 280 (1973). Polaris has not asserted, and we fail to discern, any direct conflict between the Oregon statute applied by the district court and federal maritime law, either statute or decisional.

Federal maritime jurisdiction is not, and has never been, entirely exclusive. American Dredging Co. v. Miller, 510 U.S. 443, 446, 114 S.Ct. 981, 984-85, 127 L.Ed.2d 285 (1994) (citing the "saving to suitors" clause of the federal Judiciary Act of 1789, § 9, 1 Stat. 76-77, current version at 28 U.S.C. § 1333(1)). State and federal authorities jointly wield control over maritime matters. Romero v. International Terminal Operating Co., 358 U.S. 354, 374, 79 S.Ct. 468, 481, 3 L.Ed.2d 368 (1959). It is, for example, beyond question that state courts may not offer a litigant a remedy in rem for any cause of action cognizable in admiralty. Red Cross Line v. Atlantic Fruit Co., 264 U.S. 109, 124, 44 S.Ct. 274, 277, 68 L.Ed. 582 (1924); The Moses Taylor, 71 U.S. (4 Wall.) 411, 431, 18 L.Ed. 397 (1866). Nor may state workers compensation statutes be applied to personal injury actions over which the federal courts exercise admiralty jurisdiction. Southern Pacific Co. v. Jensen, 244 U.S. 205, 37 S.Ct. 524, 61 L.Ed. 1086 (1917). But a state court may, in exercising jurisdiction in personam over a maritime claim, " 'adopt such remedies, and ... attach to them such incidents, as it sees fit so long as it does not attempt to make changes in the substantive maritime law.' " American Dredging, 510 U.S. at 447, 114 S.Ct. at 985 (quoting Madruga v. Superior Court, 346 U.S. 556, 561, 74 S.Ct. 298, 301, 98 L.Ed. 290 (1954)) (further internal quotation marks omitted). State-created maritime remedies offend federal admiralty prerogatives only where the state remedy "works material prejudice to the characteristic features of the general maritime law, or interferes with the proper harmony and uniformity of that law in its international and interstate relations." Jensen, 244 U.S. at 216, 37 S.Ct. at 529. The issue, then, is whether Oregon's requirement that an unauthorized insurer post bond before filing any pleading in an action against it does violence to any "characteristic feature" of admiralty or otherwise sounds a note so discordant as to destroy the proper harmony of federal maritime law. American Dredging, 510 U.S. at 447, 114 S.Ct. at 985.

Oregon's statute imposes a significant burden on a defendant unauthorized insurer. This burden is not uniform: some states may require such insurers to post security before appearing as a defendant in a civil action, and some states may not. But lack of uniformity may not by itself mandate federal preemption. The Supreme Court has noted that "it would be difficult, if not impossible, to define with exactness just how far the general maritime law may be changed, modified, or affected by state legislation. That this may be done to some extent cannot be denied." Jensen, 244 U.S. at 216, 37 S.Ct. at 529 (quoted in American Dredging, 510 U.S. at 451, 114 S.Ct. at 987).

The Court in American Dredging reversed the judgment of the lower court that Louisiana's forum non conveniens rule made such inroads into the proper uniformity of federal maritime law as to be preempted. The Court was in large part persuaded that the Louisiana rule was "procedural" rather than "substantive," i.e. application of the state rule did not "bear upon the substantive right to recover, and [was] not a rule upon which maritime actors rely in...