Grupo Protexa, S.A. v. All American Marine Slip, a Div. of Marine Office of America Corp.

• Citation: 20 F.3d 1224
• Decision Date: 28 April 1994
• Docket Number: No. 93-5332,93-5332
• Parties: GRUPO PROTEXA, S.A., a company organized under the laws of the Republic of Mexico; and Condux S.A. de C.V., a company organized under the laws of the Republic of Mexico v. ALL AMERICAN MARINE SLIP, A DIVISION OF MARINE OFFICE OF AMERICA CORPORATION, a New York Corporation; AFIA, a Delaware Corporation; CIGNA, a Delaware Corporation. Grupo Protexa, S.A., and Condux, S.A. de C.V., Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Page 1224

20 F.3d 1224

1994 A.M.C. 1828

GRUPO PROTEXA, S.A., a company organized under the laws of the Republic of Mexico; and Condux S.A. de C.V. a company organized under the laws of the Republic of Mexico v. ALL AMERICAN MARINE SLIP, A DIVISION OF MARINE OFFICE OF AMERICA CORPORATION, a New York Corporation AFIA, a Delaware Corporation; CIGNA, a Delaware Corporation Grupo Protexa, S.A., and Condux, S.A. de C.V., Appellants.

No. 93-5332.

United States Court of Appeals Third Circuit.

Argued Feb. 4, 1994.

Decided March 29, 1994.

Sur Petition for Rehearing April 28, 1994.

Kenneth M. Van Deventer (argued), Riker, Danzig, Scherer, Hyland & Perretti, Morristown, NJ, for appellants.

Harold K. Watson (argued), Gregory F. Burch, Robin Beasley, Liddel, Sapp, Zivley, Hill & LaBoon, L.L.P., Houston, TX, David J. D'Aloia, Saiber, Schlesinger, Satz & Goldstein, Newark, NJ, for appellees.

Before GREENBERG and ROTH, Circuit Judges, and POLLAK, District Judge ^*.

OPINION OF THE COURT

GREENBERG, Circuit Judge.

I. INTRODUCTION

This matter is before us on appeal from a judgment entered after we remanded the case to the district court when we reversed that court's prior judgment. The case involves claims by insureds under a marine insurance policy to recover the cost of removing their sunken vessel from a bay off the coast of Mexico. The policy covered costs for a removal of a sunken vessel if the removal was "compulsory by law." The insureds claimed they had acted under such compulsion because they were responding to an order to remove the wreck issued by the Mexican authorities. While certain of the several insurance carriers on the policy honored their claims, two denied liability. Thus, the insureds brought this action against those two companies. After a bench trial, the district court in a published opinion found in favor of the insurance companies on the ground that the removal was not "compulsory by law." In reaching this conclusion, the district court adopted an analytical framework not requiring it to determine the validity of the removal order.

The insureds appealed and we reversed the judgment of the district court, holding that it rested on incorrect conclusions of law. In particular we held that removal of the wreck would be "compulsory by law" if directed by a valid removal order. We then remanded the case for further proceedings. At a second bench trial, the district court incorporated its findings from the first trial and received additional evidence, including expert testimony concerning the validity of the order under Mexican and international law. In a subsequent unreported opinion, the district court held that the act of state doctrine did not bar the court's inquiry into the validity of the order. It also held, in a determination the insurance companies do not challenge, that the order, which was ambiguous as to whether it required the removal, in fact included that requirement. Ultimately however, the district court ruled in favor of the insurance companies, as it concluded that the order was invalid. The insureds again have appealed. We will affirm the district court's judgment, as we hold that the act of state doctrine does not bar our inquiry into the validity of the removal order, the order was in fact invalid, and there is no other basis on which we may conclude that the removal was compulsory by law.

II. BACKGROUND

In our earlier opinion, Grupo Protexa, S.A. v. All American Marine Slip, 954 F.2d 130 (3d Cir.1992) (Protexa Appeal I ), we extensively recited the facts of the case as found by the district court in its published opinion following the first bench trial. Grupo Protexa, S.A. v. All American Marine Slip, 753 F.Supp. 1217 (D.N.J.1990) (Protexa I ). Furthermore, as we have indicated, the district court incorporated its findings from Protexa I into its unreported opinion following the second trial. Grupo Protexa S.A. v. All American Marine Slip., No. 86-4212, 1993 WL 166275 (D.N.J. May 12, 1993) (Protexa II ). Therefore, many of the facts already appear in these two published opinions, so we freely will quote from them in setting forth the background of the case. ¹

The circumstances leading directly to this litigation may be traced to December 15, 1985, when the HUICHOL II (HUICHOL), a diving support vessel, sank with a large loss of life during a violent storm in the Bay of Campeche, an extension of the Gulf of Mexico, approximately 45 miles off the east coast of Mexico. The wreck of the HUICHOL came to rest 1.5 miles within the eastern border of the Petroleos Mexicanos' (Pemex) oil exploratory zone. Pemex is the Mexican national oil company. This area, though not Mexican territorial waters, is within the internationally recognized Mexican Exclusive Economic Zone, which extends 200 miles off shore. The HUICHOL was owned by Condux S.A. de C.V., a corporation owned by Grupo Protexa, S.A. (Protexa). Condux and Protexa are Mexican corporations and are the insureds under the policy involved in this case. Protexa is in the business of constructing and servicing the pipelines, platforms, and related structures needed by Pemex, and develops and manages these projects through Condux. For convenience, we will refer to the insureds together as "Protexa."

The HUICHOL was insured under a marine insurance policy with several layers of coverage. Under the policy, five percent of the risk was placed with a Mexican insurance company, and four primary-layer underwriters were responsible for the first $2,500,000 of covered loss. The excess-layer underwriters were responsible for losses exceeding $2,500,000. The excess-layer underwriters were All American Marine Slip (AAMS), which carried 30% of the excess layer, various Lloyds/London underwriters, which carried 65% of the excess risk, and CIGNA/AFIA, which had 5% of the excess layer. The insurance policy contained a standard wreck removal provision covering expenses Protexa incurred in the "removal of the wreck of the vessel ... when such removal is compulsory by law." (Emphasis added.)

Protexa's insurance broker was notified on December 16, 1985, that HUICHOL had sunk the day before. The broker, acting as liaison between the underwriters and Protexa, then called in a specialized firm to survey the damage, adjust the loss, and prepare a written report for the underwriters. The representative from this marine surveying firm arrived at the wreck on December 16, 1985. On the same day, the insurance broker notified the underwriters on the policy, including AAMS and CIGNA/AFIA, that the HUICHOL had sunk and that it had called in the marine surveying firm.

When the marine surveying firm's representative arrived at the wreck he met with the various parties involved. Because the wreck lay in a Pemex zone of heavy drilling activity, and he believed that the Mexican government would want to remove the bodies of the deceased seamen and conduct an investigation, he concluded that the vessel would have to be removed. The broker then sent a telex dated December 17, 1985, to Protexa suggesting that if the wreck were to be raised and moved, an immediate investigation should commence to determine if the removal was compulsory by law. The telex advised that a valid order of removal would have to be in writing and be issued by an authorized governmental authority.

Immediately after the sinking, the Mexican Procuraduria General de la Republica ordered an investigation of the sinking. On December 17, 1985, the Port Captain for Ciudad del Carmen and the offshore port of Cayo Arcas issued a written order that, according to the English translation, required Protexa to post a bond "to guarantee the cleaning up of the area and the salvaging of [the] Vessel." ² Protexa Appeal I, 954 F.2d at 132-33. Ciudad del Carmen is a city on the mainland near the place where the HUICHOL sank.

Protexa's representative interpreted the Port Captain's order as requiring immediate removal of the wreck, and on the same day the order was issued, he so notified Protexa's insurance broker and requested an immediate meeting so that the broker could present the removal order to the underwriters. The insurance broker notified all the underwriters, including AAMS and CIGNA/AFIA, of the removal order. Protexa also wanted to present its proposal to perform the removal without resort to a third-party salvor.

The broker, the marine surveying representative, and Protexa's representative met in Houston on December 18, 1985, where they agreed that the order appeared to require removal of the wreck and that Protexa's proposed removal plan was sound. The broker attempted to telephone the underwriters to discuss the proposed plan, but was able to contact only three of them, not including AAMS or the Lloyds/London underwriters. The broker explained to the underwriters the circumstances of the removal order and the need for beginning removal of the wreck without delay in order to minimize expenses. The underwriters he reached agreed to waive any requirement that Protexa obtain a second or third salvage bid, and advised that Protexa should begin work immediately to avoid further complications and costs. ³

Protexa presented the underwriters with two alternatives regarding the costs of removal: (1) a fixed-sum bid to remove the wreck for $3,785,000 or (2) a daily rate of $224,608 for an estimated period of 24 days, resulting in a cost of approximately $5.4 million. The marine surveying representative sent these offers to the underwriters by telex on December 19, 1985, and the wreck removal operation began on that day. By December 20, 1985, all of the underwriters except AAMS and CIGNA/AFIA had agreed to the lump-sum bid predicated on there being a consensus in favor of this option. CIGNA/AFIA took no position, and AAMS, instead of accepting either of the alternatives posed by Protexa, responded by advising that all necessary steps should be taken to minimize the loss. Furthermore, AAMS expressed...