Batten Down the Hatches – a Proactive and Creative Approach to Subrogation

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In American Steamship Company and Armstrong Steamship Company v. Hallett Dock Company et al. (Case No. 09-2628-MJD-LIB), Brent Reichert and Gerardo Alcazar brought a subrogation action against the Hallet Dock Company for damages that occurred during the docking of the M/V WALTER J. MCCARTHY JR., a one-thousand foot long lake freighter. In February 2012, a federal jury in Duluth, Minnesota found in favor of the American Steamship Company, the MCCARTHY’s owners, and awarded $4,682,322.55 —every dollar American Steamship and its marine insurers had sought for pollution prevention, repair costs, and lost business income. In addition to the trial verdict, American Steamship subsequently sought and was awarded prejudgment interest and allowable court costs.

The damage to the MCCARTHY occurred on Monday, January 14, 2008 as it attempted to dock for winter-layup in Superior, Wisconsin at Hallett Dock No. 8. The MCCARTHY had never used Hallett Dock No. 8 before so a few days before arrival crew members checked the nautical charts and publications to confirm the available depths in the slip. They also twice confirmed with Hallett Dock that Dock No. 8 could handle the vessel. Despite these assurances, a hidden underwater concrete and rebar mooring house that had collapsed fifteen months earlier lay in wait in the slip in an area represented as safe by Hallett. The MCCARTHY hit the hidden hazard, its hull was breached, and water rushed into the engine room. Significant flooding occurred, requiring nearly $4.2 million in engine room repairs and other costs and expenses.

While good facts certainly helped, the success of the subrogation action in American Steamship depended on the creative, proactive approach counsel for American Steamship used in the case. From the start of the litigation all the way though trial, Reichert and Alcazar looked for innovative ways to frame issues and pressure the defendant.

For example, after focused discovery, American Steamship’s lawyers utilized the Pennsylvania Rule, a well-established maritime doctrine, to help show that Hallett was negligent since it failed to comply with federal statutes. Early in the case, Reichert and Alcazar identified two federal statutes that Hallett likely violated: the Rivers and Harbors Act (33 U.S.C. § 403) and Wreck Act (33 C.F.R. § 64.11). These laws guard against the creation of an obstruction in navigable waters and require the marking of a known hidden obstruction. Over several depositions, the attorneys developed the facts necessary to establish that Hallett both created and failed to mark the hidden obstruction. On a motion for summary judgment, the presiding district court judge found a presumption of negligence against Hallett because it violated these two federal statutes.

A similarly proactive and creative approach to settlement also helped maximize the ultimate recovery for our client. Originally, the case included five defendants. Three “minor” defendants were eliminated early in the case through confidential settlements. Then, shortly before trial, American Steamship initiated confidential settlement discussions with the shipyard—the only other remaining defendant besides Hallett. Settlement at this late stage focused the trial on Hallett, the party that owned Dock No. 8 and failed to properly warn of the hidden obstruction. This settlement sought to turn an enemy into an ally. Deposition testimony suggested that the shipyard would testify at trial that Hallett did not warn it about the obstruction and that if Hallett had warned it, the shipyard would have tried to stop the MCCARTHY from moving too far into the slip. This testimony supported the trial theme that the cause of the incident started and ended with Hallett.

Since the jury found that Hallett was 100% at fault and the sole direct cause of the incident, American Steamship and its insurers recovered at trial all of their alleged damages that resulted from the casualty, an uncommon and noteworthy result in a subrogation case. In summary, the jury found that Hallett was negligent and that Hallett breached its contract with American Steamship, breached one or more express warranties, breached an implied warranty of workmanlike performance and negligently misrepresented or failed to disclose certain facts.

© 2013 Robins, Kaplan, Miller & Ciresi L.L.P.

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