Angelex, Ltd. v. United States

• Decision Date: 02 November 2018
• Docket Number: No. 17-5269,17-5269
• Citation: 907 F.3d 612
• Parties: ANGELEX, LTD., Appellant v. UNITED STATES of America, Appellee
• Court: U.S. Court of Appeals — District of Columbia Circuit

907 F.3d 612

ANGELEX, LTD., Appellant

v.UNITED STATES of America, Appellee

No. 17-5269

United States Court of Appeals, District of Columbia Circuit.

Argued September 11, 2018

Decided November 2, 2018

George M. Chalos, Oyster Bay, NY, argued the cause and filed the briefs for appellant.

Anne Murphy, Attorney, U.S. Department of Justice, Washington, DC, argued the cause for appellee. With her on the brief was Matthew M. Collette, Attorney, Washington, DC.

Before: Tatel and Millett, Circuit Judges, and Williams, Senior Circuit Judge.

Tatel, Circuit Judge:

Nearly forty years ago, Congress authorized the Coast Guard to detain ships suspected of intentionally discharging oil and other contaminants into the sea. At the same time, Congress gave a ship "unreasonably detained or delayed" a cause of action to recover "any loss or damage suffered thereby." 33 U.S.C. § 1904(h). Until today, no circuit has considered the contours of this cause of action. Sailing into uncharted waters, we ask whether the Coast Guard acted reasonably in detaining a vessel for nearly six months pending a criminal trial after its owner and operator failed to meet the government’s security bond demands. Measuring the reasonableness of the Coast Guard’s actions by an objective standard, we find that the Coast Guard set a reasonable monetary bond. We also conclude that the nonmonetary components of the bond demand contributed nothing to the owner’s losses. We therefore affirm the district court’s award of summary judgment to the government.

I.

The United States is a party to the 1973 International Convention for the Prevention of Pollution from Ships, as later supplemented by a protocol and several annexes (collectively, the "Convention"). Watervale Marine Co. v. United States Department of Homeland Security , 807 F.3d 325, 327 (D.C. Cir. 2015). The Convention obliges member states to hold ships accountable for intentionally discharging oil and other contaminants into the ocean. See id.

Congress implemented the Convention through the Act to Prevent Pollution from Ships (the "Act"). See Pub. L. No. 96-478, 94 Stat. 2297 (1980) (codified as amended at 33 U.S.C. §§ 1901 et seq. ). As amended, the Act authorizes the Department of Homeland Security to enforce the Convention and "prescribe any necessary or desired regulations to carry out" the Convention’s obligations. 33 U.S.C. § 1903(c)(1). Pursuant to that authority, the Department requires ships to, among other things, "maintain" an "Oil Record Book" that keeps track of the ship’s oily discharges into the sea. 33 C.F.R. § 151.25(a), (d). "[K]nowingly violat[ing]" those regulations is a felony. 33 U.S.C. § 1908(a). It is undisputed in this case that a new violation occurs each time a ship enters a U.S. port with a non-compliant oil record book. "A ship operated in violation of" these rules is liable in rem for "any fine imposed under" the Act. Id. § 1908(d).

If the Coast Guard has "reasonable cause" to believe that a "ship, its owner, operator, or person in charge" may be liable under the Act, the Coast Guard may require Customs and Border Patrol ("Customs") to "refuse or revoke" the clearance required for a vessel to depart from American ports. Id. § 1908(e). While enforcement proceedings are pending, that clearance may nonetheless be granted "upon the filing of a bond or other surety satisfactory to the Secretary" of Homeland Security. Id. Consistent with the United States’s obligations under the Convention—and central to this case—the Act, through section 1904(h), also creates a cause of action for a "ship unreasonably detained or delayed" to recover "compensation for any loss or damage suffered thereby." Id. § 1904(h); see International Convention for the Prevention of Pollution from Ships, art. 7(2), Nov. 2, 1973, 12 I.L.M. 1319, 1340 U.N.T.S. 184 (entered into force on Oct. 2, 1983).

Appellant, Angelex, Ltd., owns the Maltese-flagged M/V Antonis G. Pappadakis , a nearly 750-foot-long bulk carrier subject to the Convention. Kassian Maritime Navigation Agency, Ltd.—not a party to this lawsuit—chartered the vessel in 2013 to carry a load of coal. In the district court, Angelex conceded that Kassian was the ship’s "operator," as the Act uses that term. See 33 U.S.C. § 1901(a)(9). Lambros Katsipis served as the ship’s chief engineer during the 2013 voyage.

In April 2013, the Pappadakis arrived at the port of Norfolk, and Coast Guard agents boarded for a routine inspection. A crewmember passed the inspectors a note confiding that the chief engineer was using a "magic pipe"—a device designed to covertly dump water containing oil residue—to avoid reporting discharges in the oil record book.

Investigating the allegation, the Coast Guard searched the ship and interviewed crew members. The on-board investigation ended after one week, on April 19, and on the same day, the port captain sent Angelex and Kassian a letter saying that the investigation established "reasonable grounds" to believe that the Pappadakis had violated the oil record book requirements. The Coast Guard therefore directed Customs to withhold the ship’s departure clearance.

Negotiations ensued to reach an agreement that would allow the Pappadakis to sail pending prosecution. Initially, the Coast Guard demanded "that Angelex and Kassian jointly and severally post a bond in the amount of $3 million." U.S. Statement of Material Facts ¶ 66, Joint Appendix (J.A.) 140. It also required Angelex and Kassian to agree to several nonmonetary bond conditions designed to facilitate further investigation and trial. These conditions included "expressly waiving all jurisdictional defenses, paying the salaries and expenses for several crewmembers to remain in the Eastern District of Virginia, stipulating to the authenticity of all documents and items seized from the Pappadakis , and assisting the United States in effecting service on foreign citizens not located in the United States." Id.

Angelex and Kassian both protested that, strapped for cash, they were unable to meet those demands. In particular, Angelex claimed in an email that it was "in a dire financial condition" and purported to attach its "most recent financial statements" to prove that its free cash reserves topped out at $174,000, while its liabilities exceeded $10.5 million. Email from George M. Chalos, J.A. 93. Two days later, according to Angelex, it sent the Coast Guard updated financial documents, this time showing free cash reserves of nearly $800,000 and a ship mortgage of nearly $11 million. Both emails summarized the contents of the financial statements in no more than two sentences. The Coast Guard eventually reduced its demand to $2.5 million, but it would go no lower.

With negotiations at an impasse, and the Pappadakis stuck in Norfolk, Angelex took the Coast Guard to court. It filed an emergency petition for relief in the Eastern District of Virginia, and Senior District Judge Robert G. Doumar quickly convened a hearing. Halfway through, the court ordered a recess and urged the parties to settle. At first, that effort appeared to succeed: the parties agreed in principle for Angelex to comply with all of the Coast Guard’s nonmonetary conditions and post a monetary bond of $1.5 million. But Coast Guard headquarters overruled its line negotiators, holding fast to the $2.5 million demand, and the deal fell through.

Two days later, Judge Doumar granted Angelex’s petition. He did not mince words, saying of the Coast Guard’s bond demands that he could "recall seeing no greater disregard for due process, nor any more egregious abdication of the reasonable exercise of discretion" in his over thirty-year judicial career. Angelex Ltd. v. United States , No. 2:13-cv-237, 2013 WL 1934490, at *9 (E.D. Va. May 8, 2013). He ordered the government to accept the terms negotiated during the recess: $1.5 million plus the Coast Guard’s nonmonetary conditions. Id. at *10. The Fourth Circuit granted the government’s motion for an emergency stay and eventually reversed on the ground that the district court lacked subject-matter jurisdiction. Angelex Ltd. v. United States , 723 F.3d 500, 502, 505 (4th Cir. 2013).

Meanwhile, a grand jury returned an indictment charging Angelex, Kassian, and Katsipis with, among other things, three counts each of failing to maintain an accurate oil record book—one count each for three separate entries into U.S. ports. After a trial, the jury convicted Katsipis on the three oil record book counts, but acquitted Angelex and Kassian of all charges.

The Coast Guard detained the Pappadakis in Norfolk until the trial ended, and the ship finally sailed just over three weeks after the jury’s verdict. In total, the Coast Guard held the vessel for a little under six months.

In January 2015, Angelex filed this civil action alleging that the Coast Guard had unreasonably delayed the Pappadakis and seeking compensation for expenses and losses under section 1904(h). Following discovery, the parties cross-moved for summary judgment, and the district court granted the government’s motion.

The court adopted a balancing approach to reasonableness under section 1904(h), "imposing an obligation on the Government to balance its own specific and legitimate enforcement interests with the interests of the vessel’s other stakeholders." Angelex Ltd. v. United States , 272 F.Supp.3d 64, 76 (D.D.C. 2017). The court then turned to Angelex’s arguments that the Coast Guard acted unreasonably.

First, the district court rejected Angelex’s contention that the Coast Guard should have given greater weight to the vessel’s mortgage and the company’s financial situation because Angelex failed to support those arguments with admissible evidence. Specifically, the court pointed out that Angelex had introduced into the record none of the financial attachments that it supposedly sent the Coast Guard during the bond negotiations. That left the emails from Angelex’s counsel to Coast Guard officials as the only evidence of the...