Gulf Coast Shell and Aggregate, et al v. Dredge La Concha, et al

Filing

PUBLISHED OPINION FILED. [09-40942 Vacated and Remanded] Judge: EGJ , Judge: HRD , Judge: JLD, concurring in judgment only. Mandate pull date is 10/27/2010 [09-40942]

Gulf Coast Shell and Aggregate, et al v. Dredge La Concha, et al

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Case: 09-40942

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Date Filed: 10/06/2010

IN THE UNITED STATES COURT OF APPEALS United States Court of Appeals FOR THE FIFTH CIRCUIT Fifth Circuit FILED
October 6, 2010 N o . 09-40942 Lyle W. Cayce Clerk

G U L F COAST SHELL AND AGGREGATE LP; RICHMOND MATERIAL COM PANY, P la in t iffs - Appellees v. C H A R L E S T. NEWLIN, Individually, D e fe n d a n t - Appellant - Appellee and Q U I M I C O S AMIEX, S A DE C V, appearing solely in its capacity as a person w h o asserts a right of ownership interest in the Dredge La Concha, C la im a n t - Appellant v. I N T E R N A T I O N A L FIDELITY INSURANCE CO., I n t e r v e n o r - Appellant

A p p e a ls from the United States District Court fo r the Southern District of Texas

B e fo r e JOLLY, DeMOSS, and DENNIS, Circuit Judges. E . GRADY JOLLY, Circuit Judge:

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No. 09-40942 W h o has the best claim to La Concha? Well, we do not know the answer, b u t we do know that the answer cannot be provided by the courts of admiralty. The claims presented in this appeal arise from a failed oyster-dredging v e n t u r e between appellee Gulf Coast Shell and Aggregate LP ("Gulf Coast") and a p p e lla n t Charles Newlin ("Newlin"). Gulf Coast sued the oyster dredge La C o n c h a in rem, under Admiralty Rule D, for possession and to try title to the d r e d g e . It sued Newlin in personam, for breach of contract, breach of fiduciary d u t y , and wrongful conversion. The district court issued judgment in favor of G u lf Coast. Newlin challenges the existence of admiralty jurisdiction and the m e r it s of the district court's judgment. We hold that the district court did not h a v e admiralty jurisdiction over this suit because Gulf Coast has not asserted a legal claim to the dredge; because the contract between Gulf Coast and Newlin is not a maritime contract; and because the torts alleged by Gulf Coast are not m a r it im e torts.1 We therefore vacate the judgment of the district court and r e m a n d the case to the district court for entry of an order dismissing Gulf C o a s t 's claims for lack of jurisdiction. I. N e w lin , along with Roy Beken ("Beken") and Dean Koy ("Koy"), intended t o begin an oyster shell dredging venture in Mexico and to distribute the shell a g g r e g a t e in the United States. Newlin formed a Mexican corporation, Grupo T r ia d Meridian ("Grupo"), for the purpose of locating oyster shell deposits off the c o a s t of Mexico and obtaining a concession from the Mexican government to d r e d g e the deposits. Koy and Beken both purchased shares in Grupo from N e w lin . Later, Koy and Beken formed a limited partnership, Gulf Coast, for the p u r p o s e s of distributing the oyster shells from Grupo's dredging efforts for sale in the United States, and providing funds for a dredge. Koy and Richmond
For purposes of simplification, we refer throughout this opinion to the DefendantAppellant as "Newlin" and to the Plaintiffs-Appellees collectively as "Gulf Coast."
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No. 09-40942 M a t e r ia ls Company ("Richmond"), which Beken controls, each have a 49% lim it e d partnership interest in Gulf Coast. In March 2005, Beken purchased an a d d it io n a l interest in Grupo from Newlin.2 At this point, Beken and Newlin e a c h owned 24.75% of Grupo, and Koy owned 44.5%. N e w lin , Beken, and Koy agreed that Gulf Coast would be the exclusive U .S . distributor for the oyster shells. When a suitable dredge (La Concha) was lo c a t e d , Gulf Coast paid the purchase price of $300,000. However, the seller p r o h ib it e d the sale of the dredge to a U.S. entity, so the parties agreed that the p u r c h a s e agreement would list Industrias Pasmoso S.A. de C.V. ("Industrias"), a Mexican entity controlled by Newlin, as the buyer. Although they dispute the r e a s o n s for doing so, the parties agree that they intended to leave title to the d r e d g e with Industrias for the time being, and to transfer the title to Grupo after it had been refurbished and appraised at a higher value. V a r io u s entities, including Gulf Coast, paid for repairs and refurbishment o f the dredge.3 Before the refurbishment work was completed, Newlin

t r a n s fe r r e d title to the dredge to Quimicos Amibex S.A. de C.V. ("Quimicos"), a M e x ic a n entity owned primarily by Newlin, and then paid for further repairs. Newlin contends that he performed the transfer because Beken and Koy had s t o p p e d paying for repairs to the dredge. Beken, through Richmond and derivatively on behalf of Gulf Coast, filed t h e instant suit, naming the dredge in rem and Newlin as defendants. Appellant Q u im ic o s filed a claim asserting an ownership interest in the dredge. A

m a g is tr a t e judge signed an order for the arrest of the dredge. The court later e n t e r e d an order requiring $750,000 security to release the dredge. Quimicos

For this interest Beken paid $500,000 cash and gave a promissory note for $2 million. Beken never paid the promissory note, which was the subject of a Texas state court suit filed by Newlin against Beken prior to this lawsuit.
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The district court found that these payments were all made on Gulf Coast's behalf.

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No. 09-40942 file d a bond for the vessel's release. T h e district court issued an opinion on August 3, 2009, concluding that G u lf Coast had been deprived of its right to possession of the dredge. Based on t h e amounts contributed by Gulf Coast and Newlin to the refurbishing and t o w in g of the dredge, and on the purchase price paid by Gulf Coast, the court m a d e a pro rata apportionment of the $750,000 bond (which was substituting for t h e dredge as the res). The court concluded that $605,550 of the dredge's value s h o u ld go to Richmond, and the remainder to the defendants. N e w lin moved to amend the judgment or for a new trial, asserting that the d is t r ic t court lacked admiralty jurisdiction and challenging the merits. The m o t io n was denied in relevant part and the court issued an amended judgment o n August 18.4 Newlin again moved to alter or amend or for a new trial, which t h e district court again denied in relevant part. Newlin timely appealed. II. T h e threshold question before us is whether the district court had a d m ir a lt y jurisdiction over Gulf Coast's claim for possession of the dredge.5 F e d e r a l courts have original jurisdiction over admiralty or maritime civil suits. 28 U.S.C. § 1333(1). This court reviews questions of subject matter jurisdiction d e novo. In re Bissonnet Investments LLC, 320 F.3d 520, 522 (5th Cir. 2003). T h e r e are two possible bases for admiralty jurisdiction in this case: first, if this is a suit to try legal title to, or repossess, a vessel under Rule D of the S u p p le m e n t a l Rules for Certain Admiralty and Maritime Claims ("Rule D"); s e c o n d , if the contract and tort claims are properly characterized as "maritime"

The motion was granted for the limited purpose of substituting Gulf Coast for Richmond as the judgment's recipient (because Richmond had brought the suit derivatively on Gulf Coast's behalf). Admiralty jurisdiction is the only possible basis for jurisdiction in the district court; the parties do not assert diversity.
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No. 09-40942 in nature. For the reasons that follow, we conclude that Gulf Coast has an e q u it a b le rather than legal claim to title and possession, rendering its Rule D c la im s unamenable to admiralty jurisdiction. We further conclude that the c o n t r a c t and tort claims asserted by Gulf Coast are not maritime in nature. We t h e r e fo r e hold that admiralty jurisdiction does not extend to this controversy. A. W e first address whether Gulf Coast's Rule D action is based on a legal c la im to the dredge. "[A]dmiralty has jurisdiction in a possessory suit by the le g a l owner of a vessel who has been wrongfully deprived of possession." Gallagher v. Unenrolled Motor Vessel River Queen, 475 F.2d 117, 119 (5th Cir. 1 9 7 3 ) (internal citations omitted). A petitory action (to try title) under Rule D " r e q u ir e s [a] plaintiff to assert a legal title to the vessel; mere assertion of an e q u it a b le interest is insufficient." Silver v. Sloop Silver Cloud, 259 F. Supp. 187, 1 9 1 (S.D.N.Y. 1966). Similarly, a party seeking possession of a vessel under R u le D "must have legal title or a legal claim to possession." Cary Marine, Inc. v . M/V Papillon, 701 F. Supp. 604, 606 (N.D. Ohio 1988), aff'd, 872 F.2d 741 (6th C ir . 1989). A Rule D claim asserting only equitable interests, with no separate b a s is for admiralty jurisdiction, is not cognizable in admiralty. See Privilege Y a c h tin g , Inc. v. Teed, 849 F. Supp. 298, 301 (D. Del. 1994); United States v. C o r n e ll Steamboat Co., 202 U.S. 184, 194 (1906). G u lf Coast offers no support as to why its claim is legal rather than e q u it a b le . Gulf Coast acknowledges that it does not have title to the dredge, and t h e contract on which it is suing does not vest title in Gulf Coast. Quite the c o n t r a r y : Gulf Coast admits that title was intended to vest first in Industrias a n d then in Grupo. As such, we hold that Gulf Coast did not have legal title or a legal claim to ownership of the dredge. Because the relief sought by Gulf Coast is merely equitable in nature, we find no basis for admiralty jurisdiction over G u lf Coast's Rule D claims for possession and to try title to the dredge. See The 5

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No. 09-40942 C a p ta in Johnson, 64 F. Supp. 559, 560 (D.N.J. 1946) (finding no admiralty ju risd ic t io n where the plaintiffs "admit they, themselves, however inadvertently a n d by fraud, placed the legal title to the boat in question" in a third party). B. W e now turn to whether Gulf Coast's contract and tort claims present a b a s is for admiralty jurisdiction. Courts of admiralty have jurisdiction over a c o n t r a c t u a l dispute if the contract at issue is a maritime contract. Kuehne & N a g e l v. Geosource, Inc., 874 F.2d 283, 288, 290 (5th Cir. 1989). A maritime c o n t r a c t is one "relating to a ship in its use as such, or to commerce or navigation o n navigable waters, or to transportation by sea or to maritime employment." J.A.R., Inc. v. M/V Lady Lucille, 963 F.2d 96, 98 (5th Cir. 1992) (emphasis a d d e d ). However, "[t]he mere fact that a ship is involved will not bring the cause w it h in the jurisdiction of the admiralty court." Richard Bertram & Co. v. The Y a c h t Wanda, 447 F.2d 966, 967­68 (5th Cir. 1971). For example, contracts for t h e construction or sale of a vessel are not maritime contracts. Lady Lucille, 963 F .2 d at 98. To determine whether a contract is maritime, we look to whether the " n a t u r e of the transaction was maritime" and "whether the services performed u n d e r the contract are maritime in nature." Exxon Corp. v. Central Gulf Lines, I n c ., 500 U.S. 603, 611, 612 (1991). Here we have no written contract--only an oral agreement to transfer title o f a vessel to a third party. We think it clear that such an agreement does not r e la t e in any meaningful way to commerce on navigable waters or the use of the o y s t e r dredge as a dredge. We are unable to conclude that transfer of title was m e r e ly incidental to a broader maritime contract between Gulf Coast and N e w lin because this dispute is based on a discrete oral agreement (to transfer t it le ) that is the very basis for Gulf Coast's breach of contract claim. As such, the d is p u t e over this contract is not cognizable in admiralty.

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No. 09-40942 W e next review whether Gulf Coast's tort claims for wrongful conversion a n d breach of fiduciary duty afford a basis for admiralty jurisdiction. A tort is n o t cognizable in admiralty unless (1) it occurred on navigable water, or an in ju r y suffered on land was caused by a vessel on water (the location test); and (2 ) "the incident has a potentially disruptive impact on maritime commerce," or " t h e general character of the activity giving rise to the incident shows a s u b s t a n t ia l relationship to traditional maritime activity" (the connection test). Jerome B. Grubart, Inc. v. Great Lakes Dredge & Dock Co., 513 U.S. 527, 534 (1 9 9 5 ) (internal citations omitted). Gulf Coast's claims fail both tests. The torts o f wrongful conversion and breach of fiduciary duty stem directly from Newlin's a lle g e d breach of the parties' contract regarding transfer of title. It is

u n d is p u t e d that the title transfer did not occur on navigable water. Moreover, w e have already held that a transfer of title to Quimicos instead of Grupo--"the a c t iv it y giving rise to the incident"--does not bear a "substantial relationship to m a r it im e activity." Id. It relates merely to possession and ownership of the d r e d g e , not to the vessel in its use as such. Neither the contract nor its breach a r e maritime in nature, and any torts arising therefrom are similarly nonm a r it im e . A court of admiralty thus has no jurisdiction over this lawsuit. III. A d m ir a lt y jurisdiction extends to suits to try title or for possession of a v e s s e l under Rule D where the plaintiff asserts legal title or a legal claim to p o s s e s s io n . Contract and tort claims are cognizable in admiralty where those c la im s are maritime in nature. We have held that Gulf Coast's claims fail to s a t is fy these jurisdictional thresholds. The interest of Gulf Coast in possession o r partition of the dredge is merely equitable, and is thus an insufficient basis fo r admiralty jurisdiction. Furthermore, the contract that Gulf Coast accuses N e w lin of breaching is not a "maritime" contract; it relates to transfer of title, n o t to a vessel in its use as such. Similarly, the tort claims raised by Gulf Coast 7

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No. 09-40942 d o not relate to maritime activity. F o r the foregoing reasons, we hold that the district court erred in finding t h a t it had admiralty jurisdiction over this case and in rendering a judgment on t h e merits.6 We therefore VACATE the district court's judgment and REMAND fo r entry of an order of dismissal. V A C A T E D and REMANDED.7

In the light of this conclusion, we need not address the district court's judgment on the merits or any other claims raised in this appeal.
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Judge Dennis concurs in judgment only.

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