Simon v. Intercontinental Transport (ICT) B.V., s. 87-15087

• Decision Date: 16 August 1989
• Docket Number: Nos. 87-15087,88-2744,s. 87-15087
• Citation: 882 F.2d 1435
• Parties: , 58 USLW 2141, 14 Fed.R.Serv.3d 648 Tyrone SIMON; Artis Moss, Plaintiffs-Appellees, v. INTERCONTINENTAL TRANSPORT (ICT) B.V., et al., Defendants, and Marine Terminals Corporation, Claimant-Appellant. Tyrone SIMON; Artis Moss, Plaintiffs-Appellees, v. MARINE TERMINALS CORPORATION; Majestic Insurance Company; a California corporation; Mission Insurance Company, a California corporation; and Other Unknown Agents of Majestic Insurance Company, Mission Insurance Company, and Marine Terminals Corporation, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1435

882 F.2d 1435

1990 A.M.C. 288, 58 USLW 2141, 14

Fed.R.Serv.3d 648

Tyrone SIMON; Artis Moss, Plaintiffs-Appellees, v. INTERCONTINENTAL TRANSPORT (ICT) B.V., et al., Defendants, and Marine Terminals Corporation, Claimant-Appellant.

Tyrone SIMON; Artis Moss, Plaintiffs-Appellees, v. MARINE TERMINALS CORPORATION; Majestic Insurance Company;

a California corporation; Mission Insurance Company, a

California corporation; and Other Unknown Agents of

Majestic Insurance Company, Mission Insurance Company, and

Marine Terminals Corporation, Defendants-Appellants.

Nos. 87-15087, 88-2744.

United States Court of Appeals Ninth Circuit.

Argued and Submitted March 15, 1989.

Decided Aug. 16, 1989.

B. James Finnegan and Katherine F. Theofel, Finnegan & Marks, a Professional Corp., San Francisco, Cal., for defendants-appellants and claimant-appellant.

William E. Weiss, Livingston & Weiss, a Professional Corp., San Francisco, Cal., for plaintiffs-appellees.

Appeal from the United States District Court for the Northern District of California.

Before HUG, HALL and O'SCANNLAIN, Circuit Judges.

HUG, Circuit Judge:

We face two consolidated appeals arising from litigation that began after two longshore workers sustained injuries in the course of their employment and began receiving compensation payments from their employing stevedore under the Longshore and Harbor Workers' Compensation Act ("LHWCA"), 33 U.S.C. Secs. 901-950 (1982 & Supp. V 1987). The first appeal arises from a negligence action that the longshore workers filed against the owner of the ship where their injuries occurred. The stevedore, which participated in the action as a lien claimant, appeals an order by the district court imposing costs against the stevedore under Fed.R.Civ.P. 68. The second appeal arises from an action filed by the longshore workers against the stevedore and its liability insurers for bad faith breach of contract resulting from the stevedore's participation in the negligence action. The stevedore and the insurers appeal the district court's order denying their motion to dismiss the action for lack of subject matter jurisdiction or for failure to state a claim. These appeals require that we decide whether the requirements of Rule 68 were satisfied, and whether the bad faith breach of contract claim lies within the admiralty jurisdiction of federal district courts, 28 U.S.C. Sec. 1333 (1982). We conclude that Rule 68 was unmet and that admiralty jurisdiction is lacking. Consequently, we reverse both orders of the district court.

BACKGROUND

Tyrone Simon and Artis Moss were employed as longshore workers by Marine Terminals Corporation ("MTC"), a stevedoring company in the business of loading and unloading ships in the San Francisco Bay Area. While working aboard the Incotrans Spirit in the Port of Oakland, Simon and Moss sustained injuries when the ship's ladder gave way causing Simon to fall onto Moss, who stood on the deck below. Because their injuries occurred in the course of maritime employment with a stevedore, Simon and Moss became entitled to compensation payments from MTC under the LHWCA. See Bloomer v. Liberty Mut. Ins. Co., 445 U.S. 74, 74-75, 100 S.Ct. 925, 926, 63 L.Ed.2d 215 (1980). These payments, like payments under similar workers' compensation systems, are calibrated according to fixed schedules that vary with the severity, type, and duration of a covered injury. See 33 U.S.C. Secs. 908, 909 (1982 & Supp. V 1987). MTC's liability for these payments became its exclusive liability for the injuries Simon and Moss suffered. Id. Sec. 905 (Supp. V 1987).

After Simon and Moss began receiving the payments, they each filed a negligence action against Intercontinental Transport (ICT), B.V. ("ICT"), the owner and operator of the Incotrans Spirit. These actions were consolidated. Although Simon and Moss did not name MTC as a party to the actions, the rights and duties of the LHWCA enabled MTC to enter the dispute. The LHWCA first subjected Simon's and Moss' potential net recoveries from ICT to liens in favor of MTC for the amount of compensation that MTC paid each of them. See Bloomer, 445 U.S. at 75, 100 S.Ct. at 926. The LHWCA also gave MTC a potential interest in the excess of the net recoveries over the liens because a compensating stevedore may use such excess as an offsetting credit against liability for future compensation payments to the injured longshore Simon and Moss entered into settlement discussions with ICT under the supervision of the district court. MTC participated in these discussions at the parties' invitation. Ultimately, ICT offered to settle with Simon for $325,000 plus costs and with Moss for $15,000 plus costs. Simon and Moss wanted to settle, but MTC withheld its consent. MTC then formally appeared in the action by filing a notice and request for allowance of a lien in the amount of $106,428.99 against Simon's net recovery and $3,434.45 against Moss' net recovery.

worker. See 33 U.S.C. Sec. 933(f) (Supp. V 1987). As a means of protecting these interests, the LHWCA gave MTC some control over the discretion Simon and Moss had to settle with ICT before trial: Simon and Moss could not settle without losing their rights to future compensation benefits unless MTC gave advance written consent to the settlement. See id. Sec. 933(g).

After the appearance, Simon served MTC with a written offer of judgment pursuant to Fed.R.Civ.P. 68. The offer provided that Simon would consent to suffer a judgment of $101,000 with costs on the lien claim if MTC would consent to Simon settling with ICT for $325,000. Moss did not serve an offer of judgment. MTC rejected Simon's offer of judgment, the case proceeded to trial, and the jury awarded $300,000 to Simon and $11,000 to Moss. The district court entered judgment on the verdict for Simon and for Moss and on MTC's lien claim in its entirety. Simon and Moss then moved for costs against MTC under Fed.R.Civ.P. 68. The district court concluded the requirements of the rule were satisfied and ordered MTC to pay $4,390.18 in costs to Simon and Moss.

Shortly before entry of judgment in the negligence action, Simon and Moss filed in federal district court a second lawsuit naming as defendants MTC; an MTC employee, Alan Landstrom; and two insurance carriers for MTC, Majestic Insurance Company ("Majestic") and Mission Insurance Company ("Mission"). As amended, Simon and Moss' complaint presents a single claim against all defendants. According to the complaint, Mission and Majestic insured MTC against loss and liability arising from the operation of a stevedoring business, including liability for compensation payments under the LHWCA. Pursuant to agency and service agreements with both Mission and Majestic, MTC acted as the adjuster of its employees' claims for compensation. Simon and Moss allege that MTC's withholding of consent to the settlement offer by ICT worked a bad faith breach of these insurance policies and service agreements. Simon and Moss also assert a right to sue for the breach as third party beneficiaries.

The defendants moved to dismiss the amended complaint for failure to state a claim or for lack of subject matter jurisdiction. The district court denied the motion as to MTC, Mission, and Majestic, finding that the bad faith breach of contract claim fell within the court's admiralty jurisdiction and that the amended complaint stated a claim against all defendants except Alan Landstrom.

In the first appeal, MTC seeks reversal of the order imposing costs under Fed.R.Civ.P. 68. We have jurisdiction to review that order under 28 U.S.C. Sec. 1291 (1982). In the second appeal, MTC, Majestic, and Mission seek reversal of the order denying their motion to dismiss the amended complaint. The district court certified that order as appropriate for immediate interlocutory appeal under 28 U.S.C. Sec. 1292(b) (1982), and we granted the petition for review. We address each order in turn.

DISCUSSION

I. The Order Imposing Rule 68 Costs

MTC argues under a variety of theories that Rule 68 cannot apply to lien claimants under the LHWCA or, in the alternative, that the requirements of the rule are unsatisfied in this case. Because we reverse on the ground that Rule 68 is unsatisfied, we do not reach MTC's other arguments.

The case law of this circuit has yet to delineate the proper standard for reviewing district court decisions applying Rule 68. We have held, however, that the mandatory Rule 68 of the Federal Rules of Civil Procedure permits a party defending against a claim to serve on the adverse party an offer of judgment any time more than 10 days before trial. The offer must set out the money or property or the effect of the adverse judgment to which the defending party is willing to accede. Fed.R.Civ.P. 68. If the adverse party rejects the offer and fails after trial to obtain a judgment more favorable than the offer, Rule 68 requires that party to pay the costs incurred in litigating the case from the making of the offer. Id.

                cast of the rule "leaves no room for district court discretion."    Liberty Mut. Ins. Co. v. EEOC, 691 F.2d 438, 442 (9th Cir.1982).  When a proper Rule 68 offer is made and the other requirements of the rule are met, the district court must award costs measured from the service of the offer.  Id.  The mandatory cost-shifting feature of Rule 68 resembles the requirement under Fed.R.Civ.P. 11 that courts impose sanctions whenever the filing of a paper violates the standard of that rule.  See Golden Eagle Distrib.  Corp. v. Burroughs Corp., 801 F.2d 1531, 1538 (9th Cir.1986).  The absence of district court discretion to withhold sanctions led to our adoption of the de novo standard for reviewing whether specific conduct conforms to the requirements of Rule 11 and the clearly erroneous standard for reviewing disputed factual findings that set the precise contours of conduct.  Id.  We believe a similar analytical framework should apply to Rule 68.

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