In re Hellenic Inc.

• Decision Date: 21 May 2001
• Docket Number: No. 00-30428,00-30428
• Citation: 252 F.3d 391
• Parties: (5th Cir. 2001) In Re: In the Matter of the Complaint: HELLENIC INC., as Owner & Operator of the Spud Barge Athena 107 for Exoneration from or Limitation of Liability, doing business as Athena Construction. HELLENIC INC., In the Matter of the Complaint of Hellenic Inc. as Owner & Operator of the Spud Barge Athena 107 for Exoneration from or Limitation of Liability, doing business as Athena Construction, Plaintiff - Appellant, v. BRIDGELINE GAS DISTRIBUTION LLC; TEXACO EXPLORATION AND PRODUCTION INC., Defendants- Appellees
• Court: U.S. Court of Appeals — Fifth Circuit

Page 391

252 F.3d 391 (5th Cir. 2001)

In Re: In the Matter of the Complaint: HELLENIC INC., as Owner & Operator of the Spud Barge Athena 107 for Exoneration from or Limitation of Liability, doing business as Athena Construction.

HELLENIC INC., In the Matter of the Complaint of Hellenic Inc. as Owner & Operator of the Spud Barge Athena 107 for Exoneration from or Limitation of Liability, doing business as Athena Construction, Plaintiff - Appellant, v. BRIDGELINE GAS DISTRIBUTION LLC; TEXACO EXPLORATION AND PRODUCTION INC., Defendants- Appellees.

No. 00-30428

UNITED STATES COURT OF APPEALS, FIFTH CIRCUIT

May 21, 2001

Appeal from the United States District Court for the Western District of Louisiana.

Before REYNALDO G. GARZA, HIGGINBOTHAM, and SMITH, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

This case requires us to return again to the Limited Liability Act. The vessel owner appeals a denial of limited liability for damage caused by one of its employees to a submerged pipeline, arguing that the company lacked the requisite "privity and knowledge." We find the argument persuasive and now reverse.

I

Athena Construction is a division of Appellant Hellenic, Inc. Athena has been engaged in marine construction since the late 1970s. It is the only division of Hellenic engaged in maritime work. Athena contracted with Texaco Exploration and Production, Inc. to install pipeline in Texaco's Rabbit Island Field in Atchafalaya Bay, Louisiana. On February 7, 1997, the Athena 107--a "spud barge" owned by Athena--was "spudded down" in the field.¹ In the early morning hours of February 8, 1997, wind and sea moved the Athena 107, causing it to strike and rupture a twenty-inch natural gas pipeline owned by Bridgeline Gas Distribution LLC. The parties have stipulated that Bridgeline spent $250,959.90 to repair the line.

Dana Lee, a construction superintendent employed by Athena, made the decision to leave the barge unmanned and anchored by its spuds. Lee had worked on the Rabbit Island Field for approximately fifteen years. He had authority over the operation of all four vessels used by Athena in the project, including the Athena 107. He also supervised two contract divers engaged by Athena to bury pipeline. In addition, he dealt with Texaco's project inspectors regarding whether Texaco would conduct a survey to determine the existence of other pipelines in the vicinity. He was required to confer with Drake Stansbury, Athena's president, only if Texaco suggested that work be done which appeared to fall outside the scope of the project.

Lee formed part of Athena's relatively compact corporate structure. In addition to Stansbury, two other employees exercised management responsibility: Albert Aucoin, Athena's General Superintendent, and Phillip Thomas, Athena's Safety Director. Beneath Aucoin and Thomas on the corporate hierarchy were Athena's four construction supervisors, or field superintendents: Dana Lee, Charles Clinton, Jimmy Aucoin, and Billy Kennerson. Each construction supervisor was in charge of supervising the particular construction project in the field he had been assigned.

For purposes of the Rabbit Field project, Stansbury considered Lee his "eyes and ears on the job." However, Stansbury also testified that construction supervisors do not make "business decisions" on behalf of Athena. For instance, Lee could not execute binding contracts, set Athena's prices, or hire and fire Athena employees.² Nor did he have any administrative responsibilities with either Athena or Hellenic. It is undisputed, however, that Lee had authority to decide whether and under what circumstances a barge would remain in the field overnight. Both parties agree that Lee was negligent in deciding on February 7, 1997 to leave the barge unmanned and that his decision caused the damage to the pipeline.

On August 7, 1997, Hellenic filed a Complaint for Exoneration from or Limitation of Liability. Pursuant to the Limited Liability Act,³ Hellenic sought to limit its liability to the value of the Athena 107 and its pending freight. Texaco and Bridgeline then filed a complaint seeking to recover their costs. The actions were consolidated. After a bench trial, the district court determined that Hellenic and Texaco were both negligent and apportioned fault on the following basis: Hellenic 60 percent, Texaco 40 percent. The district court denied Hellenic's request for limited liability. The court awarded Bridgeline the stipulated amount of damages, $250,959.90. Hellenic appeals this ruling.

II

Hellenic challenges only the district court's denial of limited liability.⁴ This Court reviews such a determination for clear error.⁵ The Limited Liability Act allows a vessel owner to limit its liability for any loss or injury caused by the vessel to the value of the vessel and its freight.⁶ "Under the Act, a party is entitled to limitation only if it is 'without privity or knowledge' of the cause of the loss."⁷ If the shipowner is a corporation, "knowledge is judged by what the corporation's managing agents knew or should have known with respect to the conditions or actions likely to cause the loss."⁸ Once the claimant establishes negligence or unseaworthiness, the burden shifts to the owner of the vessel to prove that negligence was not within the owner's privity or knowledge.⁹

The 1895 Act was originally passed "to ensure that American shipping attracted investment capital that the threat of unlimited exposure might divert to England," which at that time already granted its ships limited liability.¹⁰ The Act predates both the dominant position of the corporation, which provides limited liability, and the current breadth of insurance protection.¹¹ This Court has described the Act as "hopelessly anachronistic," and has implied that courts should accord it a narrow construction.¹²

The "privity or knowledge" exception has proven difficult to apply. Congress did not define these terms, leaving to courts the task of filling these "empty containers" with meaning.¹³ In turn, we have observed that the question of "privity or knowledge must turn on the facts of the individual case,"¹⁴ stating that a corporation "is charged with the privity or knowledge of its employees when they are sufficiently high on the corporate ladder."¹⁵ We have further explained that privity or knowledge "is imputed to the corporation when the employee is 'an executive officer, manager or superintendent whose scope of authority includes supervision over the phase of the business out of which the loss or injury occurred.'"¹⁶

These observations reflect, if unevenly, broader and familiar principles of agency law. A corporate principal is generally considered to know what its agents discover concerning those matters in which the agents have power to bind the principal.¹⁷ An agent's knowledge is imputed to the corporation where the agent is acting within the scope of his authority and where the knowledge relates to matters within the scope of that authority.¹⁸ While courts generally agree that the knowledge of directors or key officers, such as the president and vice president, is imputed to the corporation,¹⁹ they differ as to the effect of knowledge acquired by other employees. The decision on whether to impute knowledge acquired by such employees tends to be fact-intensive and contingent on the specific legal regimes involved.²⁰

Some threshold for imputation is required. As this Court has noted in applying the Limited Liability Act, "[b]ecause a corporation operates through individuals, the privity and knowledge of individuals at a certain level of responsibility must be deemed the privity and knowledge of the organization, 'else it could always limit its liability.'"²¹ At one level, then, the imputation of knowledge is a creature of necessity.

In restricting the privity and knowledge exception to managing agents, however, the limited liability doctrine is also sensitive to the scope of an owner's control over his agents. Thus, a master's navigational errors at sea are generally not attributable to the owner.²² When the owner is so far removed from the vessel that he can exert no control over the master's conduct, he should not be held to the master's negligence. In such cases, the owner may rely on the master's skill and expertise.²³

This reasoning is consistent with the principle that "[t]he duty to control increases along with the possibility of control."²⁴ Indeed, one justification for vicarious liability is that it encourages employers to more effectively supervise employees.²⁵ Where a corporation grants its agents significant discretion and autonomy, it is reasonable to deny limitation and thereby hold the company liable for the full range of consequences resulting from its decision. Where greater supervision is not possible--e.g., where the master is at sea, far from the owner's control--limited liability is more desirable.²⁶ The "managing agent" standard reflects these concerns.²⁷

The dispositive question in this case is therefore whether Lee's position in the corporate hierarchy was sufficiently elevated to impute his knowledge to Athena. We have emphasized that it is the "extent of the employee's responsibility, not his title, [that] determines whether limitation is foreclosed."²⁸ Courts are to determine whether the employee is a "managing agent with respect to the field of operations in which the negligence occurred."²⁹ Although this determination is case-specific, courts have looked to a number of factors: (1) the scope of the agent's authority over day-to-day activity in the relevant field of operations;³⁰ (2) the relative significance of this field of operations to the business of the corporation;³¹ (3) the agent's ability to hire or fire other employees;³² (4) his power to negotiate and enter into contracts on behalf of the company;³³ (5) his authority to set prices;³⁴ (6) the agent's authority over the payment of expenses;³⁵ (7) whether the agent's...