Psarianos v. Standard Marine, Ltd., Inc., Civ. A. No. B-84-298-CA.

• Decision Date: 30 October 1989
• Docket Number: Civ. A. No. B-84-298-CA.
• Citation: 728 F. Supp. 438
• Parties: Jane Alice PSARIANOS, et al. v. STANDARD MARINE, LTD., INC., et al.
• Court: U.S. District Court — Eastern District of Texas

728 F. Supp. 438

Jane Alice PSARIANOS, et al. v. STANDARD MARINE, LTD., INC., et al.

Civ. A. No. B-84-298-CA.

United States District Court, E.D. Texas, Beaumont Division.

October 30, 1989.

COPYRIGHT MATERIAL OMITTED

C. John Caskey, Baton Rouge, La., for plaintiffs.

George W. Renaudin and Dan Caruso, Simon, Peragine, Smith & Redfearn, New Orleans, La., for Standard Marine, Ltd., Eagle Transport, Ltd. and Peter T. Kikis.

Thomas B. Greene, III, Crain, Caton, James & Womble, Houston, Tex., for American Bureau of Shipping.

Jack L. Albritton, Fulbright & Jaworski, Houston, Tex., for United Kingdom Mut. S.S. Assur. Ass'n and Thomas R. Miller.

AMENDED MEMORANDUM OPINION

COBB, District Judge.

The M/V THOMAS K sank in international waters off the coast of Japan on February 1, 1984, with the captain plus a crew of fourteen. Plaintiffs and intervening plaintiffs in this case are the crew members and the survivors of the deceased crew members of the THOMAS K. They have filed personal injury and wrongful death actions against the vessel's owner, Eagle Transport Limited, Inc. (Eagle), its manager and operator, Standard Marine Ltd., Inc. (including Standard Marine (Hellas), Ltd.), alleged as the alter ego behind Eagle and Standard Marine, Peter T. Kikis, and the American Bureau of Shipping (ABS). Eagle, Standard Marine, and Kikis then instituted third party proceedings against the United Kingdom Mutual Steamship Assurance Association (Bermuda), Ltd. (a/k/a United Kingdom Protection and Indemnity Club) ("P & I Club" or "Club"), and its manager, Thomas R. Miller and Son (Bermuda) (Miller). In the third party complaint, Eagle, Standard, Marine, and Kikis claimed the Club and Miller breached a contract of insurance and sought indemnification for all sums they were required to pay to the plaintiffs.

The Club and Miller moved to dismiss the third party complaint, because of the third party plaintiffs' failure to state a cause of action, the lack of in personam jurisdiction over the third party defendants, and, pursuant to the contract of indemnity, the right to have the contract dispute arbitrated in London, England. These matters are now before this court. For the following reasons, third party defendants' motion to dismiss is denied in part and granted in part.

I. BACKGROUND: THE SHIP, THE VOYAGE, AND THE SUIT

The M/V THOMAS K was owned by Eagle Transport, Ltd., a closely held Liberian corporation with its principal place of business in New York. Eagle's three principal officers, including Peter T. Kikis, its president, were and are all American citizens domiciled in New York.

Experiencing the world-wide deteriorating conditions in the shipping industry, Eagle decided to withdraw from the shipping market in the late 1970s. Eagle began to sell its major assets, and by the early 1980s, the THOMAS K was the only ship remaining in its once large fleet. The industry continued to decline, and Eagle chose to sell the THOMAS K. It contacted brokers in New York who found a ready market for the vessel in the Far East. Eagle intended to sell the ship for its value as scrap metal after the voyage was complete.

The THOMAS K had been inactive and berthed in Port Arthur, Texas, since June 1982, and it was necessary to inspect the vessel and to reactivate it for its final voyage. Kikis, in his corporate capacity, contacted and hired Captain Emanuel Mylonakis to be the master of the THOMAS K. Captain Mylonakis subsequently hired a crew of Greek seamen to man the vessel. The American Bureau of Shipping (ABS), a marine classification society, was contacted in September 1983 to attend the vessel and make all necessary examinations and surveys, enabling the vessel to sail in class and in compliance with ABS's rules.

One of the requirements of ABS specified the vessel be brought for mandatory periodic drydocking every two and a half years. Eagle was willing to drydock the vessel in Port Arthur, Texas, if necessary, but ABS suggested and performed an underwater divers' inspection of the hull and tailshaft on October 11, 1983, in lieu of drydocking.

After issuing temporary certifications of the vessel's integrity and safety and informing Captain Mylonakis he had a "six-months' extension" of the drydocking requirement, ABS concluded its activities aboard the THOMAS K on December 8, 1983, and issued a compliance certificate for the ship's radio.

The last voyage of the THOMAS K began on December 10, 1983, destined first for Port Canaveral, Florida. The crew was limited to fourteen men, recruited by Captain Mylonakis. On December 15, 1983, the vessel docked in Port Canaveral where it began taking on a cargo of shredded scrap metal to be delivered to the Mitsubishi Corporation in Japan. The vessel then embarked for Japan on December 30, 1983, via the Panama Canal. On January 28, 1984, the THOMAS K encountered heavy seas in the North Pacific. Pounding seas and heavy weather caused the ship to experience a separation of the exterior shell (hull) plating near the bottom of the wing tank on the side of its No. 1 hold, and water entered. Emergency repairs were attempted at sea. On January 31, there was an explosion and fire in the vessel's engine room; over twenty hours were spent making repairs. The THOMAS K was without power while repairs were in progress, and in effect adrift. She drifted toward one of the Nagasota Islands, a small chain of islands in Japanese waters, when the captain attempted to re-route the ship to the Island of Shimizu. She came within thirteen miles of the Iro-Zaki light off the Izou Peninsula, but still within international waters. By February 1, 1984, the THOMAS K was in dire distress and imminent danger of sinking.

Although the Japanese Coast Guard offered assistance, Captain Mylonakis refused aid and even denied his own crew their request to abandon ship. The THOMAS K sank at 12:30 p.m. the same day, and the Japanese Coast Guard began rescue operations. During the two days the Japanese Coast Guard was on alert, a member of that Coast Guard was at the ready with a video camera in hand. He taped the last twenty minutes of the THOMAS K's struggle, breaking up, and sinking. These were available and shown to the court and jury during the trial. As a result of the sinking, eight crew members died, including Captain Mylonakis, and seven crew members survived but sustained varying degrees of injury.

When the THOMAS K sank, she had been entered with the United Kingdom Protection & Indemnity Club for insurance coverage for liabilities incurred by Eagle. The P & I Club was organized under the laws of Bermuda and retained Thomas R. Miller & Son (Bermuda) as its agent and manager in London, England. The contract of insurance was evidenced by the certificate of entry between the Club and Eagle. The Club received immediate notice of the THOMAS K's loss, then instructed the law firm of Walker and Corsa, of New York and Hong Kong, to investigate the loss in anticipation of litigation. After examining reports prepared by Messrs. Walker and Corsa, the managers of the Club came to the view that the circumstances of the sinking might result in Eagle's exclusion of coverage for any and all claims arising from the loss. It appeared to the Club that coverage might be excluded under Rules 5(J), 5(K), and 5(L) of the Certificate of Entry. The rules are set forth in the footnote below.¹

The Club and Eagle retained separate English and American counsel to conduct a further investigation of the loss. Based on this investigation, Miller gave Eagle formal notice on April 5, 1984, that the Club reserved its position regarding whether insurance coverage would be provided Eagle in the present case.

In May and October 1984, and January 1985, the directors of the Club discussed the subject of the THOMAS K. The directors analyzed reports and opinion letters from all counsel involved, and found that Eagle was in breach of Rule 5(K) by reason of the vessel's failure to comply with the requirements of the ABS. The directors declined to exercise their discretion under this rule to waive Eagle's alleged breach, and Eagle was so informed. The Club asserted Eagle's breach resulted in no coverage for liabilities incurred by Eagle as a result of the sinking of the THOMAS K.

Eagle's English solicitors then requested that the Club reconsider its denial of coverage. The matter was again submitted to the directors of the Club at its May 1985 meeting, and the directors refused to exercise their discretion to waive Eagle's breach of Rule 5(K) and again reserved the Club's other defenses under Rules 5(J) and 5(L).

The plaintiffs filed the present action on March 23, 1984, against Eagle, Standard Marine, and Kikis, based upon the unseaworthiness of the THOMAS K and the defendants' negligence under the general maritime laws of the United States and the Jones Act. ABS was subsequently brought into this suit as a defendant on a general negligence theory. Plaintiffs also sought punitive damages for willful, wanton, and grossly negligent conduct.

On November 7, 1985, ABS filed a separate cross-action against Eagle, Standard Marine, and Kikis, seeking contribution or indemnity if plaintiffs should recover from ABS. In turn, Eagle, Standard Marine, and Kikis filed crossclaims against ABS, alleging (1) when the THOMAS K set sail for Japan, Eagle reasonably believed it had done everything required by ABS to be in conformity with ABS rules and regulations, and (2) Eagle relied to its detriment on ABS's representations that the THOMAS K was in class and in compliance with ABS rules; therefore, ABS was estopped to assert such contention.

On December 3, 1985, Eagle, Standard Marine and Kikis filed their third party complaint against the Club and Miller, alleging inter alia that the third party defendants failed to honor the contract of insurance with Eagle. Before a trial on the merits of the main suit, the Club and Miller moved to dismiss the third party action. To...