Tyrone Simon Artis Moss v. Intercontinental Transport (Ict) B v. and Marine Terminals Corporation, Claimant-Appellant. Tyrone Simon Artis Moss 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

Citation: 882 F.2d 1435Docket: 88-2744

Court: Court of Appeals for the Ninth Circuit; August 16, 1989; Federal Appellate Court

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Two consolidated appeals arise from injury claims by longshore workers Tyrone Simon and Artis Moss against Intercontinental Transport (ICT) B.V. after they were injured while working aboard the ship Incotrans Spirit. Both workers were employed by Marine Terminals Corporation (MTC) and received compensation under the Longshore and Harbor Workers' Compensation Act (LHWCA). The first appeal concerns a negligence action against ICT, where MTC, as a lien claimant, contested a district court order imposing costs against it under Federal Rule of Civil Procedure 68. The second appeal stems from a bad faith breach of contract claim filed by Simon and Moss against MTC and its liability insurers due to MTC's involvement in the negligence case. The stevedore and insurers challenged the district court’s dismissal of their motion to dismiss based on lack of subject matter jurisdiction or failure to state a claim. The Court of Appeals had to determine if Rule 68 was satisfied and whether the breach of contract claim fell under the admiralty jurisdiction of federal courts. Ultimately, the court found that the requirements of Rule 68 were not met and that there was no admiralty jurisdiction, leading to the reversal of the district court's orders.

MTC holds a potential interest in excess recoveries under the Longshore and Harbor Workers' Compensation Act (LHWCA), allowing it to offset future compensation liabilities for an injured longshore worker. Under 33 U.S.C. Sec. 933(f), MTC must provide written consent for any settlement between Simon, Moss, and ICT, or Simon and Moss risk losing future compensation benefits. Despite wanting to settle, Simon and Moss were unable to obtain MTC's consent. MTC subsequently filed a notice of lien against Simon’s recovery for $106,428.99 and Moss’ for $3,434.45. Simon later served MTC with a Rule 68 offer of judgment, proposing to consent to a judgment of $101,000 if MTC would allow his settlement with ICT for $325,000, which MTC rejected. The case proceeded to trial, resulting in jury awards of $300,000 for Simon and $11,000 for Moss, along with a ruling in favor of MTC's lien claim. 

Simon and Moss then sought costs against MTC, which the district court granted, ordering MTC to pay $4,390.18. Subsequently, Simon and Moss initiated a second lawsuit against MTC, its employee Alan Landstrom, and MTC's insurers, Majestic and Mission Insurance Companies, alleging bad faith for withholding consent to the settlement and asserting third-party beneficiary rights. The court denied a motion to dismiss the amended complaint, maintaining jurisdiction over the bad faith breach.

MTC appealed the cost order under Rule 68, claiming it should not apply to lien claimants under the LHWCA or that the rule's requirements were unmet. The court reversed the cost order, determining that the Rule 68 requirements were not satisfied, and did not address MTC's other arguments.

Case law in this circuit has not established a standard for reviewing district court decisions regarding Rule 68, but it has been determined that the rule's mandatory nature precludes district court discretion. When a valid Rule 68 offer is made, the district court is obligated to award costs from the time the offer is served if the offeree does not achieve a more favorable judgment after trial. This cost-shifting mechanism is similar to the mandatory sanctions under Fed. R. Civ. P. 11, leading to a de novo review standard for compliance with Rule 68 and a clear error standard for any disputed factual findings.

Rule 68 allows a defending party to serve an offer of judgment more than 10 days before trial, specifying the terms the defending party is willing to accept. If the opposing party rejects the offer and fails to obtain a more favorable judgment, they must bear the litigation costs incurred after the offer. In this case, MTC argued that the requirements of Rule 68 were not met because the judgment awarded was more favorable than Simon's offer. The court agreed, finding the district court's conclusion flawed based on irrelevant factual findings and clear errors.

The district court mistakenly compared Simon's net recovery from a settlement offer with ICT, rather than focusing solely on the lien amounts relevant to Rule 68. The court's analysis incorrectly included benefits to MTC from Simon's overall recovery instead of strictly considering the lien claim. Furthermore, Rule 68 applies only to defending parties, meaning Simon, as the plaintiff regarding the negligence claim, could not make an effective offer under this rule. Thus, the relevant comparison for Rule 68 is limited to the amounts on MTC's lien claim, excluding considerations of potential future compensation offsets.

The district court found that MTC's judgment did not exceed Simon's offer of judgment, as both addressed MTC's lien against Simon's net recovery. However, this conclusion was erroneous; Simon's offer was for $101,000, while MTC ultimately received $106,428.99. This discrepancy means that Simon's offer was less favorable than the judgment MTC obtained, thus failing to meet the requirements under Rule 68 for cost imposition.

Simon and Moss argued that MTC should be estopped from exploiting the difference in judgment amounts because MTC initially provided an incorrect figure of $101,000. However, MTC's formal notice detailing the actual lien amount, which was sent prior to Simon's offer, negated any reliance on the initial figure. Simon could have amended his offer before trial but failed to do so. Consequently, Simon's lack of action undermined any claim for estoppel.

Regarding the motion to dismiss, the MTC parties asserted that the district court lacked subject matter jurisdiction for Simon and Moss's bad faith breach of contract claim due to a failure to meet either federal law or diversity of citizenship criteria. The jurisdictional basis is solely admiralty law, which requires a distinction between tort and contract claims. Simon and Moss's claim, while related to a contract, does not meet the maritime tort criterion since the events in question occurred on land, not navigable waters.

Admiralty jurisdiction applies to contract claims if the contract's subject matter is maritime. Established precedents categorize contracts as either maritime or nonmaritime without a definitive guideline for application. The contracts in question are insurance policies and service agreements relevant to MTC's compensation claims. Marine insurance policies related to vessels involved in maritime commerce are recognized as maritime contracts; however, the determination of whether other insurance policies qualify depends on the maritime nature of the insured interests rather than the risks covered. For example, insurance for beachfront property is nonmaritime despite covering sea-related risks. Simon and Moss assert that MTC's policies, which specifically cover loss or damage to cargo or ships linked to MTC's stevedoring operations, indicate a maritime nature. This coverage includes losses from charter parties and stevedoring contracts, which are inherently maritime. However, MTC's policies also cover nonmaritime activities, such as pier leases, which generally do not qualify as maritime contracts unless associated with a specific vessel. Additionally, MTC's policies encompass a wide range of potential losses from stevedoring operations that may not directly relate to maritime activities. Thus, the insured interests under these policies are a combination of both maritime and nonmaritime elements.

A contract must be entirely maritime to fall under admiralty jurisdiction, with two exceptions. The first allows admiralty jurisdiction if nonmaritime obligations are incidental to the primary maritime nature of the contract; however, this does not apply here as the nonmaritime interests insured by MTC are central to the risks involved. The second exception permits admiralty jurisdiction over severable maritime obligations if nonmaritime obligations are substantial, but this is also inapplicable since the insured interests in the amended complaint are deemed nonmaritime and beyond admiralty jurisdiction. 

The amended complaint centers on MTC's liability insurance under the Longshore and Harbor Workers' Compensation Act (LHWCA), which relates to stevedoring—a maritime activity. However, whether this insurance is maritime depends on its connection to maritime commerce and the sea. Generally, admiralty denies jurisdiction over contracts involving obligations merely preliminary to maritime contracts, which may relate to ships but do not significantly differ from shoreside services unrelated to ship operation. This principle was illustrated in a case where an allocation contract between a local union and seamen was deemed nonmaritime due to its lack of direct relation to a particular ship, similar to land-based industry contracts.

MTC's insurance for liability under the Longshore and Harbor Workers' Compensation Act (LHWCA) is comparable to state workers' compensation insurance, lacking a direct connection to any specific vessel and having only an indirect link to maritime commerce through stevedoring contracts. This tenuous relationship does not qualify the insurance as a maritime obligation, which would fall under admiralty jurisdiction. Simon and Moss argue that congressional intent, inferred from the enactment of the LHWCA, extends admiralty jurisdiction to claims related to insurance coverage for compensation liability. However, such an interpretation is rejected, as the LHWCA does not automatically grant federal subject matter jurisdiction over every related claim. Instead, traditional tests for maritime torts and contracts must be applied, which do not support admiralty jurisdiction in this case.

Furthermore, Simon and Moss cite legislative history from the LHWCA's enactment and amendments to argue for expanded admiralty jurisdiction. They emphasize that the act allows stevedores' liability under LHWCA to substitute for liability "at law or in admiralty," but this does not imply a broader jurisdictional intent. Similarly, references to longshore workers engaging in "maritime employment" do not establish that insurance contracts covering liabilities under the LHWCA are maritime contracts. The conclusion that Simon and Moss' claim for bad faith breach of contract falls outside admiralty jurisdiction aligns with the interests that the jurisdiction is meant to protect, as the defendants are all shoreside entities, negating the need for admiralty's in rem process to prevent a ship from leaving port.

All parties involved are citizens of the same state, and their insurance policies and service agreements are intended to be performed within that state. Consequently, there is no necessity for admiralty jurisdiction, which provides a federal forum and uniform maritime law, as the risk of bias from local courts and differing state laws does not apply. Given the prominent role of insurance in this case, state law is deemed more appropriate for interpreting the contracts than maritime law. The court reversed the order that imposed costs on MTC under Fed. R. Civ. P. 68, finding that MTC's judgment on the lien exceeded Simon's judgment offer, thus failing to meet Rule 68's requirements. Additionally, the court reversed the denial of MTC, Majestic, and Mission's motion to dismiss the bad faith breach of contract claim, determining that the relevant contractual obligations are nonmaritime and do not support admiralty jurisdiction under 28 U.S.C. Sec. 1333. The text also clarifies that Moss's recovery is unrelated to the Rule 68 issue since only Simon made a written offer. Furthermore, it emphasizes that admiralty jurisdiction does not cover torts committed on land and requires a significant relationship to traditional maritime activities. Lastly, it clarifies that the Longshore and Harbor Workers' Compensation Act (LHWCA) does not mandate that stevedores insure against compensation liability but rather requires them to secure payment, which can be done through insurance or by proving the ability to pay compensation.