In re Litigation Involving Alleged Loss of Cargo

• Decision Date: 19 August 1991
• Docket Number: Civ. No. 89-1107,MDL No. 828,90-1895 and 90-2420 to 90-2423.,89-1652
• Citation: 772 F. Supp. 707
• Parties: In re LITIGATION INVOLVING ALLEGED LOSS OF CARGO FROM TUG ATLANTIC SEAHORSE, "SEA BARGE 101" BETWEEN PUERTO RICO AND FLORIDA IN DECEMBER 1988.
• Court: U.S. District Court — District of Puerto Rico

772 F. Supp. 707

In re LITIGATION INVOLVING ALLEGED LOSS OF CARGO FROM TUG ATLANTIC SEAHORSE, "SEA BARGE 101" BETWEEN PUERTO RICO AND FLORIDA IN DECEMBER 1988.

MDL No. 828, Civ. Nos. 89-1107, 89-1652, 90-1895 and 90-2420 to 90-2423.

United States District Court, D. Puerto Rico.

August 19, 1991.

Cordero, Miranda & Pinto, Keith A. Graffam, Old San Juan, P.R., for plaintiffs in No. Civ. 89-1107.

Underwood, Gillis & Karcher, P.A., Andrew W. Anderson, Miami, Fla., for plaintiffs in No. Civ. 90-1895.

José F. Sárraga, San Juan, P.R., for Marine Transp. Services Sea Barge.

Calvesbert & Brown, José E. Alfaro Delgado, San Juan, P.R., and Hayden & Milliken, P.A., Jan M. Kuylenstierna and Robert W. Blanck, Miami, Fla., for Transconex, Inc. and AIM Caribbean Express, Inc.

Law Offices of Lee H. Schillinger, Lee H. Schillinger, Coral Gables, Fla., for plaintiffs in No. Civ. 90-2420.

Mitchell, Harris, Horr & Associates, P.A., David J. Horr, Miami, Fla., for plaintiffs in No. Civ. 90-2421.

Waks & Barnett, P.A., Andrew L. Waks, Miami, Fla., for plaintiffs in No. Civ. 90-2422.

Armstrong & Mejer, P.A. by Alvaro L. Mejer, Coral Gables, Fla., and José F. Sárraga, San Juan, P.R., for Sea Barge Group, Inc. and Marine Transp. Services Sea Barge.

Robert Lamar Bell, Miami, Fla., and Bird Bird & Hestres, Antonio M. Bird, Jr., San Juan, P.R., for plaintiffs in No. Civ. 90-2423.

Golman Antonetti, Juan H. Saavedra, San Juan, P.R., for plaintiffs in No. Civ. 89-1652.

OPINION AND ORDER

FUSTE, District Judge.

In December of 1988, M/V Barge No. 101 was en route from San Juan, Puerto Rico, to Miami, Florida, carrying cargo. Nineteen containers of cargo were lost overboard, setting off a series of actions against the barge owner, Sea Barge Group Inc. ("Sea Barge"), and Sea Barge's insurance company, Fireman's Fund Insurance Companies (Fireman's Fund). Complaints were filed in both Florida and Puerto Rico, and the matter was eventually consolidated as a Multidistrict Litigation before this court. Settlements have occurred or have been promised in three of the original filings (90-1895, 90-2422, and 90-2423). In a fourth case, 90-2420, the parties expect to settle, and there are no dispositive motions which need our attention.

Three other cases have pending motions that we dispose of by way of today's order. The motion in the first case (90-2421, MDL Docket No. 53) deals with whether Fireman's Fund can be sued directly by a cargo owner (now in the form of a subrogated insurance company) under Puerto Rico's direct action statute. The insurance question rests on a difficult choice of law analysis. The motion in the second case (89-1107, MDL Docket No. 56)¹ deals with the same insurance question as to the direct action statute, and also asks us to determine whether an owner of goods in fact became an "insured" under a Fireman's Fund policy merely by signing a bill of lading with Sea Barge. Though the parties assert that they expect this third case to settle, no final settlement statement has been made and we rule now on the motion in anticipation of that settlement.² The motions in the third case (89-1652, MDL Docket Nos. 94 & 95) deal with whether Sea Barge and Fireman's Fund can amend their counterclaims at this late date. We take up the three motions in turn.

Fireman's Fund's Motion Against INA

Under Civil No. 90-2421, Insurance Company of North America (INA) paid off certain owners of cargo for their loss, exercised its right to subrogation, and sued Sea Barge, Ayala, and Fireman's Fund. As to Fireman's Fund, the complaint alleged a right to sue not as an insured under any policy, but rather under the Direct Action statute of Puerto Rico, 26 L.P.R.A. §§ 2001 et seq., which gives the injured party the right to sue a legal liability insurer directly. Since we find that Florida, rather than Puerto Rico law must direct this decision, and since Florida law does not allow for direct action by a non-insured against a legal liability insurer for the acts or omissions of the insured, we grant Fireman's Fund's motion to dismiss as to it.

INA unambiguously invoked this court's maritime jurisdiction, 28 U.S.C. § 1333 (see Amended Complaint (MDL Docket No. 52)). Although ordinarily uniform rules are applied in admiralty jurisdiction, the Supreme Court has mandated the adoption by the court sitting in admiralty of state law in the area of maritime insurance contracts, in the absence of a controlling federal rule. Wilburn Boat Co. v. Fireman's Fund Insurance Co., 348 U.S. 310, 75 S.Ct. 368, 99 L.Ed. 337 (1955). "Federal admiralty law confers no general right to sue an insurance company directly citation omitted nor does it contain any specific bar against such an action." Steelmet, Inc. v. Caribe Towing Corp., 779 F.2d 1485, 1487 (11th Cir.1986). Since some states allow such direct actions, and others do not, the question then arises as to which state's law should apply. Where the state law is being adopted by the federal court under its admiralty jurisdiction, and not simply as an exercise of diversity jurisdiction, a federal choice of law rule must be applied in choosing which state substantive law should be adopted. State Trading Corp. v. Assuranceforeningen Skuld, 921 F.2d 409 (2nd Cir.1990). In State Trading, the court was sitting in admiralty and was faced with the question of whether the Connecticut direct action statute should be applied to allow an action against a marine insurance company. The court noted that the rule of Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941), which requires federal district courts to look to the choice of law rule of the state in which they sit, applies only to a federal court sitting in diversity. The State Trading court therefore accepted the irony, as do we, that while a federal court exercising its admiralty jurisdiction over a maritime insurance dispute must seek a state rule as to the availability of direct action, it must look to a federal rule of choice of law in order to find the correct state rule.

Choice of Law in Diversity as Opposed to Admiralty

We note in passing that the issue might be very different if the plaintiffs invoked the diversity jurisdiction of the court, and maintained the state direct action claim as a separate action parallel to the substantive admiralty claim. (It is not always so easy to determine on which side of the admiralty/diversity law fence a claim is meant to fall, Austin v. Unarco Industries, Inc., 705 F.2d 1, 6, n. 1 (1st Cir.1983); Ramos v. Continental Insurance Company, 493 F.2d 329 (1st Cir. 1974), but in this case the pleading leaves no question but that diversity jurisdiction is not being invoked). If the plaintiff had proceeded on the direct action statute under diversity, the court would need to look to the local choice of law rules of the state in which it is sitting to determine which state direct action statute would apply. In one First Circuit case, for instance, the court did not specifically address the choice of law question, but it did hold that an action under the Rhode Island direct action statute could be pursued as a separate state law claim qua state law claim, alongside the underlying admiralty dispute so long as the court's diversity jurisdiction had been invoked as the basis for the direct action claim. Pace v. Insurance Co. of North America, 838 F.2d 572 (1st Cir. 1988). The First Circuit has specifically recognized that the Puerto Rico direct action statute creates a substantive state law right which may stand on its own. Ruiz Rodriguez v. Litton Industries Leasing Corp., 574 F.2d 44 (1st Cir.1978). It stands to reason that where the direct action statute is invoked independently under state law and is not merely adopted as federal law, the court would have to behave as a proper diversity court and apply Klaxon.³

Which Federal Choice of Law Rule?

Having determined that a federal choice of law rule applies, however, only leads us to a new problem in this hydra-headed choice of law question. This matter came to us as a matter of multidistrict litigation consolidation from a federal district court in Florida, sitting in the Eleventh Circuit. In other words, we have these matters more as a convenience to the federal court system than for any substantive venue purpose or because the litigants chose to litigate here. In the case of transfers between districts sitting in diversity for a change of venue under 28 U.S.C. § 1404(a), the rule of Van Dusen v. Barrack, 376 U.S. 612, 84 S.Ct. 805, 11 L.Ed.2d 945 (1964), applies and requires that the transferee district court rule exactly as if it were sitting in the same state as the transferor court. The rule assures that the "`accident' of federal diversity jurisdiction does not enable a party to utilize a transfer to achieve a result in federal court which could not have been achieved in the court of the State where the action was filed." Van Dusen, 376 U.S. at 637-39, 84 S.Ct. at 819-21. The decision is driven by the Erie doctrine. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).

No such similar state/federal concerns are present in the transfer of an action based on federal law pursuant to a multidistrict litigation order (and although we ultimately seek a state rule, we have already determined that the state rule here merely operates as an extension of the federal admiralty jurisdiction, not as an independent state rule). In In re Korean Air Lines Disaster of September 1, 1983, 829 F.2d 1171 (D.C.Cir.1987), the D.C. Circuit faced the question of which circuit's federal law a district court should apply after receiving the transfer: the law of the circuit of the transferor district or of the transferee district. The D.C. Circuit determined that while the transferee court should consider the law of the transferor circuit, it would ultimately be bound only by the law of its own circuit. The court held that all ...