Operaciones Tecnicas Marinas S.A.S. v. Diversified Marine Services, LLC et al

Filing 14

ORDER & REASONS granting in part and denying in part 10 Motion to Dismiss. FURTHER ORDERED, that the plaintiff is allowed leave, as requested, to amend itspleading in accordance with this order. Signed by Judge Martin L.C. Feldman on 12/19/2012. (caa, )

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
OPERACIONES TECNICAS MARINAS S.A.S.

CIVIL ACTION

v.

NO. 12-1979

DIVERSIFIED MARINE SERVICES, LLC ET AL.

SECTION F

ORDER AND REASONS
Before the Court is Diversified Marine Services, LLC’s
motion to dismiss plaintiff’s claims for gross negligence,
recklessness, fraud, and punitive damages.

For the reasons that

follow, the motion is GRANTED with respect to plaintiff’s fraud
claim, and DENIED with respect to plaintiff’s claims for gross
negligence, recklessness, and punitive damages.
Background
This case arises from a failed maritime voyage.
Operaciones Tenicas Marinas (“OTM”) is a marine operating
company based in Cartagena, Colombia.

OTM purchased two sister

vessels, M/V MARY TIDE and M/V THOMAS TIDE, which had been out of
service for several years.

In November 2010, OTM entered into a

contract with Diversified Marine Services, LCC, to drydock the
vessels, evaluate their condition, and determine the work
necessary to make the vessels seaworthy.
From November 2010 to June 2011, Diversified allegedly
communicated on a regular basis with OTM to relay recommendations

1

based on its inspection of the vessels, obtain approval for
maintenance and repair, and invoice and collect funds from OTM
for work performed.1

According to the plaintiff’s complaint, OTM

relied on the representations of Diversified and approved a
schedule of work, which Diversified supposedly performed and told
OTM it had performed.

OTM paid and satisfied all invoices, and

on May 17, 2011, based on Diversified’s assurances that the
vessels were nearly ready for use, OTM entered into a bareboat
charter agreement with Serviport S.A.2

According to the terms of

the charter agreement, OTM was to deliver the vessels to
Serviport on July 15, 2011.

OTM contends it informed Diversified

of the charter agreement and Diversified told OTM that the
vessels would be fit for the voyage to Colombia in sufficient
time to commence the charter.
On or about June 20, 2011, OTM paid Diversified the
outstanding balance for the vessel repairs.

In total, OTM paid

$344,769.15 in repairs purportedly performed to both vessels.
OTM asserts that it relied upon the representations of
Diversified that the following repairs had been made:
(1) the main engines of both vessels had been inspected;

1

Diversified allegedly identified twenty-four repairs to be made
to the M/V MARY TIDE, and eighteen repairs for M/V THOMAS TIDE.
2

The charter agreement provided for a six-month term, with an
option to extend the charter for another six months. The initial
six month charter hire was $381,600.
2

(2) the center and starboard main engines of the M/V MARY
TIDE had undergone full out-of-frame overhauls;3
(3) the center main engine of the M/V THOMAS TIDE had
undergone an in-frame overhaul;4
(4) the gears transmitting the power between the main engine
to the shaft of both vessels has been inspected and
repaired;
(5) the rudder stocks and steering systems of both vessels
has been inspected and repaired;
(6) the hull integrity of both vessels has been inspected
for water leakage and possible compromised areas, and repair
for laying the same had been recommended and performed;
(7) the necessary navigational equipment on both vessels had
been inspected, tested, and repaired or replaced
accordingly;
(8) the air-conditioning systems, along with other various
systems, had been inspected and repaired as new.
On June 23, 2011, both vessels departed the Diversified
shipyard for Cartagena, Colombia.

The vessels soon experienced

3

This requires unbolting and completely removing the engines
from the vessel. Once removed, the engines are broken down to
individual component pieces and cleaned. All mechanical systems
and wear items are then replaced with new parts, and the engines
are then returned to the vessel.
4

This involves replacing the major wear items of the engine
while the engine remains mounted to the frame of the vessel.
3

severe mechanical and electrical problems, and became adrift
approximately 340 miles from Cartagena, Colombia.

As a result,

both vessels had to be towed the last leg of the voyage, first by
the Colombian Navy and later by a commercial assist tug hired by
OTM.
The vessels were surveyed upon arrival, and, OTM contends,
several electrical and mechanical problems were discovered.

OTM

also claims that the engines for both vessels were disassembled
for inspection by an engine repair company, Stewart & Stevenson.
The results of the inspection concluded that the center main
engine of M/V THOMAS TIDE and the starboard main engine of M/V
MARY TIDE had not been overhauled as Diversified agreed.

Because

the vessels would be unavailable for delivery to Serviport on
July 15, 2011, OTM was in breach of the OTM-Serviport bareboat
charter agreement, which was ultimately terminated.
OTM sued Diversified in this Court on July 31, 2012,
alleging claims for breach of contract; negligent
misrepresentation; intentional misrepresentation; negligence,
gross negligence, and recklessness; breach of warranty of
workmanlike performance; and fraud.

OTM seeks damages arising

from towage expenses, the cancellation of the charter agreement,
survey expenses, additional repair costs, and other claimed
damages associated with the work performed by Diversified.
also asserts a claim for punitive damages.

4

OTM

Diversified now moves

for dismissal of plaintiff’s claims for gross negligence,
recklessness, fraud, and punitive damages under Rule 12(b)(6).
I. Legal Standard
Rule 12(b)(6) of the Federal Rules of Civil Procedure allows
a party to move for dismissal of a complaint for failure to state
a claim upon which relief can be granted.

Such a motion is

rarely granted because it is viewed with disfavor.

See Lowrey v.

Tex. A & M Univ. Sys., 117 F.3d 242, 247 (5th Cir. 1997) (quoting
Kaiser Aluminum & Chem. Sales, Inc. v. Avondale Shipyards, Inc.,
677 F.2d 1045, 1050 (5th Cir. 1982)).

In considering a Rule

12(b)(6) motion, the Court “accepts ‘all well-pleaded facts as
true, viewing them in the light most favorable to the
plaintiff.’”

See Martin K. Eby Constr. Co. v. Dall. Area Rapid

Transit, 369 F.3d 464 (5th Cir. 2004) (quoting Jones v.
Greninger, 188 F.3d 322, 324 (5th Cir. 1999)).

But, in deciding

whether dismissal is warranted, the Court will not accept
conclusory allegations in the complaint as true.
F.2d at 1050.

Kaiser, 677

Indeed, the Court must first identify allegations

that are conclusory and, thus, not entitled to the assumption of
truth.

Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009).

A

corollary: legal conclusions “must be supported by factual
allegations.” Id. at 678.

Assuming the veracity of the well-

pleaded factual allegations, the Court must then determine
“whether they plausibly give rise to an entitlement to relief.”

5

Id. at 679.
“‘To survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to state a claim to
relief that is plausible on its face.’” Gonzalez v. Kay, 577 F.3d
600, 603 (5th Cir. 2009)(quoting Iqbal, 556 U.S. at 678)(internal
quotation marks omitted).

“Factual allegations must be enough to

raise a right to relief above the speculative level, on the
assumption that all the allegations in the complaint are true
(even if doubtful in fact).”

Bell Atl. Corp. v. Twombly, 550

U.S. 544, 555 (2007) (citations and footnote omitted). “A claim
has facial plausibility when the plaintiff pleads factual content
that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.”

Iqbal, 556 U.S.

at 678 (“The plausibility standard is not akin to a ‘probability
requirement,’ but it asks for more than a sheer possibility that
a defendant has acted unlawfully.”).

This is a “context-specific

task that requires the reviewing court to draw on its judicial
experience and common sense.” Id. at 679.

“Where a complaint

pleads facts that are merely consistent with a defendant’s
liability, it stops short of the line between possibility and
plausibility of entitlement to relief.”

Id. at 678 (internal

quotations omitted) (citing Twombly, 550 U.S. at 557).

“[A]

plaintiff’s obligation to provide the ‘grounds’ of his
‘entitle[ment] to relief’”, thus, “requires more than labels and

6

conclusions, and a formulaic recitation of the elements of a
cause of action will not do.”

Twombly, 550 U.S. at 555

(alteration in original) (citation omitted).
In deciding a motion to dismiss, the Court may consider documents
that are essentially “part of the pleadings.”

That is, any

documents attached to or incorporated in the plaintiff’s
complaint that are central to the plaintiff’s claim for relief.
Causey v. Sewell Cadillac-Chevrolet, Inc., 394 F.3d 285, 288 (5th
Cir. 2004) (citing Collins v. Morgan Stanley Dean Witter, 224
F.3d 496, 498-99 (5th Cir. 2000)).

Also, the Court is permitted

to consider matters of public record and other matters subject to
judicial notice without converting a motion to dismiss into one
for summary judgment.

See United States ex rel. Willard v.

Humana Health Plan of Tex. Inc.,

336 F.3d 375, 379 (5th Cir.

2003).
II. Discussion
Diversified contends that plaintiff’s claims for gross
negligence, recklessness, fraud, and punitive damages should be
dismissed pursuant to Rule 12(b)(6).

The Court can only agree

with respect to plaintiff’s fraud claim.
A.
The defendant first asserts that plaintiff fails to allege
facts to support claims of gross negligence and recklessness.
Specifically, defendant contends that OTM’s complaint merely

7

offers labels and conclusions, and does not allege facts that
suggest Diversified acted to willfully inflict harm on OTM or its
crew members.

Moreover, defendant asserts that these claims are

founded on the very same allegations that form the basis of OTM’s
contractual claims against Diversified.
Gross negligence is defined as reckless and wanton
misconduct.
1989).

See Miles v. Melrose, 882 F.2d 976, 989 (5th Cir.

Significantly, gross negligence is distinguished from

ordinary negligence in that it “encompasses harm that is
willfully inflicted or is caused by the wanton and reckless
disregard for the safety of others.”

See Computalog U.S.A., Inc.

v. Blake Drilling & Workover Co., Inc., No. 95-3009, 1996 WL
720761, at *2 (E.D. La. Dec. 9, 1996) (citing Todd Shipyards
Corp. v. Turbine Serv., Inc., 674 F.2d 401, 411 (5th Cir. 1982)).
The Court, accepting all well-pleaded facts as true and viewing
them in a light most favorable to the plaintiff, finds that OTM
states a gross negligence and recklessness claim that is
plausible, albeit barely, on its face.
Although the Court agrees with the defendant that OTM’s
complaint lacks allegations to suggest that Diversified acted to
willfully inflict harm on OTM, the Court finds that the complaint
contains enough plausible factual allegations that allow the
Court to draw a reasonable inference that the defendant may have
acted with wanton and reckless disregard for the safety of

8

others.

Specifically, the Court finds troubling the allegation

that Diversified told OTM that it repaired the engines when in
fact it possibly had not.

OTM does not assert a mere conclusory

allegation; rather, OTM pleads alarming factual details about how
the engines and other vessel components failed, leaving the
vessels adrift off the coast of Colombia.

Moreover, OTM submits

an exhibit to its complaint, which the Court may consider in
deciding a motion to dismiss; it is a technical report from an
independent engine repair company, which concluded that repairs
and an overhaul of the engines had not occurred.

Again, on the

necessary assumption that all of these allegations are true, the
Court finds that OTM states a claim for gross negligence and
recklessness.

See Twombly, 550 U.S. at 555 (“Factual allegations

must be enough to raise a right to relief about the speculative
level, on the assumption that all the allegations in the
complaint are true (even if doubtful in fact).”).
B.
Defendant also contends that plaintiff fails to state a
claim for fraud.
It is settled within the Fifth Circuit that a federal court
sitting in admiralty applies the common law of fraud.

See Black

Gold Marine, Inc. v. Jackson Marine Co., 759 F.2d 466 (5th Cir.
1985); Cargill, Inc. v. Degesch Am., Inc., No. 11-2036, 2012 WL
2367392 (E.D. La. June 21, 2012); Elmwood Dry Dock & Repair v.

9

H&A Trading Co., No. 93-2156, 1997 WL 781298 (E.D. La. Dec. 16,
1997).

Stating a fraud claim requires a plaintiff to allege:
1.
2.
3.
4.
5.

a false representation—usually of fact—made by the
defendant;
knowledge or belief on the part of the defendant
that
the
representation
is
false,
or
an
insufficient basis to make the representation;
an intention to induce the plaintiff to act or
refrain
from
acting
in
reliance
on
the
information;
justifiable reliance by the defendant; and
damage to the plaintiff resulting from the
reliance.

Cargill, 2012 WL 2367392, at *4.

Plaintiff’s allegations of

fraud implicate the heightened pleading requirements of Federal
Rule of Civil Procedure 9(b), which provides that “[i]n alleging
fraud or mistake, a party must state with particularity the
circumstances constituting fraud or mistake.

Malice, intent,

knowledge, and other conditions of a person’s mind may be alleged
generally.”

Fed. R. Civ. P. 9(b).

The Fifth Circuit has

explained:
[The Fifth Circuit] interprets Rule 9(b) strictly,
requiring a plaintiff [who pleads] fraud to specify the
statements contended to be fraudulent, identify the
speaker, state when and where the statements were made,
and explain why the statements were fraudulent.
Put
simply, Rule 9(b) requires the complaint to set forth the
who, what, when, where, and how of the events at issue.
Dorsey v. Portfolio Equities, Inc., 540 F.3d 333, 339 (5th
Cir. 2008) (citations and internal quotation marks omitted); see
also Cargill, 2012 WL 2367392, at *4.

The second sentence of

Rule 9(b) “relaxes the particularity requirement for conditions
10

of the mind such as scienter: Malice, intent, knowledge, and
other conditions of the mind may be alleged generally.”
540 F.3d at 339 (internal quotation marks omitted).

Dorsey,

But, while

Rule 9(b) “expressly allows scienter to be averred generally,”
simple allegations that defendant possesses fraudulent intent
will not satisfy Rule 9(b).

Id. (internal quotation marks

omitted). Rather, the plaintiff must “allege specific facts
supporting an inference of fraud.”

Id.

Strikingly absent from plaintiff’s complaint are factual
allegations that invite an inference of fraudulent intent.

At

best, the complaint contains one allegation of intent:
“Diversified’s representations that the vessels were repaired
were made with the intention that OTM pay for the repairs
purportedly made to the vessels and for OTM to undertake the
voyage to Colombia.”

Significantly, “[p]laintiffs do not

sufficiently allege motive by making generic allegations that the
defendant had a financial interest in carrying out the alleged
fraud.”

McNamara v. Bre-X Minerals Ltd., 57 F. Supp. 2d 396, 405

(E.D. Tex. 1999); see Cargill, 2012 WL 2367392, at *4 (dismissing
plaintiff’s claim because the allegation that the defendant had
performed in a certain manner when in fact it had not was
insufficient to allow for an inference of fraudulent intent).
Although the plaintiff explains at length in its opposition paper
how its complaint satisfies the other elements for a claim of

11

fraud, it glosses over the intent requirement in one sentence.
Moreover, in rebutting the defendant’s contentions, plaintiff
still fails to persuade how its complaint contains special facts
that underpin a fraudulent motive.

The Fifth Circuit has

mandated “specific facts supporting an inference of fraud,” and
without such allegations here, OTM’s claim for fraud fails under
Rule 12(b)(6) and the heightened pleading standard of Rule 9(b).
C.
Plaintiff’s claim for punitive damages, however, brings the
Court into less settled waters.5

OTM asserts that punitive

damages are appropriate here for two reasons.

First, plaintiff

is alleging claims rooted in general maritime law, and the U.S.
Supreme Court’s recent decision in Atlantic Sounding Co. v.
Townsend established that punitive damages are available under
federal maritime law for wanton, willful, or outrageous conduct.
Second, punitive damages are available for OTM’s breach of
contract claims, because the conduct that breached the contract
was also a tort for which punitive damages are recoverable.

5

As a threshold issue, defendant contends that OTM lacks
standing to seek punitive damages because none of the crew
members that manned the two vessels are plaintiffs in this
lawsuit. The defendant appears to miss the point of punitive
damages, which are “aimed not at compensation but principally at
retribution and deterring harmful conduct.” Exxon Shipping Co. v.
Baker, 554 U.S. 471, 492 (2008). Moreover, it is unnecessary to
surmise at this stage of the proceedings as to the measurement of
any potential award.
12

In Atlantic Sounding Co. v. Townsend, a seaman sought to
recover punitive damages in a general maritime suit for failure
to pay maintenance and cure.

557 U.S. 404, 407 (2009).

The

Supreme Court addressed the narrow question of whether the
general maritime claim of willful and wanton failure to pay
maintenance and cure, which arises from common law, was limited
to the remedies available under the Jones Act.

Id.

The Court

noted that a claim for maintenance and cure was a separate cause
of action from Jones Act claims and, therefore, the Jones Act
limitations did not apply.

Id. at 417-19.

As a result, the

Court held that punitive damages are recoverable for the general
maritime claim of willful nonpayment of maintenance and cure.
Id. at 418-19.
The scope of Townsend is still being assessed by the courts.
The question remains whether punitive damages are also available
for other claims stemming from general maritime law, including
claims that do not involve personal injury.

Case law within this

Circuit reveals that courts have held that Townsend does not, in
cases like this one, affect the availability of punitive damages
in Jones Act claims, but does potentially allow for recovery in
general maritime claims of gross, willful, and wanton negligence,
and breach of contract claims if the conduct which constitutes
the breach is also a tort for which punitive damages are
recoverable.

See Scott v. Cenac Towing Co., LLC, No. 12-811,

13

2012 WL 4372515, at *2 (E.D. La. Sept. 24, 2012) (holding that
Townsend does not change the proposition that punitive damages
are unavailable for Jones Act claims, but noting that the
decision does reinvigorate the debate as to punitive damages in
claims arising under general maritime law); Ryan Marine Servs.,
Inc. v. Hudson Drydocks, Inc., No. 06-2245, 2011 WL 6209801, at
*4 (W.D. La. Dec. 13, 2011) (“[T]he Court concludes that,
generally, punitive or exemplary damages are not recoverable in
contract cases.

Punitive or exemplary damages are recoverable

only if the conduct which constitutes the breach is also a tort
for which punitive damages are recoverable.”); In re Oil Spill by
the Oil Rig DEEPWATER HORIZON in the Gulf of Mexico, on April 20,
2011, MDL No. 2179, 2011 WL 4575696, at *11 (E.D. La. Sept. 30,
2011) (“As explained in Townsend . . . neither the Jones Act nor
the Death on the High Seas Act speaks to negligence claims
asserted by the non-seamen under general maritime law, and
punitive damages have long been available at common law.

The

Court finds punitive damages are available to . . . plaintiffs
who are not seamen.”); Rogers v. Resolve Marine, No. 09-4141,
2009 WL 2984199, at *1 (E.D. La. Sept. 11, 2009) (acknowledging
that the law on this issue is unsettled, but allowing the
plaintiff to amend his complaint to assert a claim for punitive

14

damages for alleged gross, willful, and wanton negligence of the
defendant in causing plaintiff’s injuries).6
The trend appears to be that post-Townsend, courts have
carefully considered the Supreme Court’s holding that punitive
damages have long been available at common law, that the commonlaw tradition of punitive damages extends to maritime law, and
that unless evidence exists that the claim is to be excluded from
this general admiralty rule (like the Jones Act, which explicitly
limits damages), punitive damages are available.

In light of

this, and the other decisions in this Circuit, the Court cannot
conclude at this stage, in which the Court is limited to the
pleadings, that the plaintiff is precluded from asserting a claim
for punitive damages in connection with its general maritime law
claims.

See Rogers, 2009 WL 2984199, at *1 (allowing plaintiff

to assert a claim for punitive damages in light of the unsettled
nature of this issue); In re Md. Marine, Inc., 641 F. Supp. 2d
579, 584-85 (E.D. La. 2009) (“In the light of the movement of the
law in this area, the Court is willing to consider the

6

For cases outside this Circuit that address punitive damages
post-Townsend, see Doe v. Royal Carribean Cruises, Ltd., No. 1123321, 2012 WL 4479084, at *2 (S.D. Fla. Sept. 28, 2012) (holding
that after Townsend punitive damages are available for general
maritime claims of wanton, willful, or outrageous conduct);
Lobegeiger v. Celebrity Cruises, Inc., No. 11-21620, 2011 WL
3703329, at *7 (S.D. Fla. Aug. 23, 2011) (“[A] plaintiff may
recover punitive damages under general maritime law, consistent
with the common-law rule, where the plaintiff’s injury was due to
the defendant’s wanton, willful, or outrageous conduct.”
(internal quotation marks omitted)).
15

possibility of presenting the . . . claim as a separate part of
the damages sought in this case.
any award, however.
law changes.”).

No judgment would be entered on

This would avoid retrial in the event the

This is not to say that upon further motion

practice or a merits trial, the plaintiff’s claim for punitives
will survive (the Fifth Circuit requires a defendant to have
acted willfully and wantonly in order for punitive damages to be
awarded).
Regarding plaintiff’s breach of contract claims, defendant
asserts that punitive damages may not be awarded on contractual
claims regardless of the nature of the alleged wrongful conduct.
In support of its argument that punitive damages are recoverable
only in admiralty cases based in tort, Diversified relies on
Guevara v. Maritime Overseas Corp., 59 F.3d 1496 (5th Cir. 1996),
and other cases outside of the Fifth Circuit, in particular
Thyssen, Inc. v. S.S. Fortune Star, 777 F.2d 57 (2d Cir. 1985).
Notably, Guevara was abrogated by the Supreme Court in Townsend,
and Thyssen did not completely rule out punitive damages in
relation to contract cases; rather, the Second Circuit in Thyssen
held that punitive damages are recoverable for a breach of
contract if the conduct constituting the breach is also a tort
for which punitive damages are recoverable.

See Townsend, 557

U.S. at 429; Thyssen, 777 F.2d at 63 (citing RESTATEMENT (SECOND)
CONTRACTS § 355 (1979)).

16

OF

The United States District Court for the Western District of
Louisiana recently confronted the issue of whether punitive
damages are available in a breach of contract case.

In Ryan

Marine Services, Inc. v. Hudson Drydocks, Inc., plaintiff entered
into a contract with defendant to repair and overhaul a vessel,
and during the course of the repair work, the vessel caught fire.
2011 WL 6209801, at *1.
contract and fraud.

Id.

Plaintiff sued defendants for breach of
The court conceded that no other

opinion in any other circuit addressed the scope of Townsend in a
contract case, and, notably, employed the analysis used in
Townsend and its progeny to hold that punitive damages are
“recoverable only if the conduct which constitutes a breach is
also a tort for which punitive damages are recoverable.”
*4.

Id. at

Significantly, the conduct in Ryan Marine that allegedly

served as the contract breach did not also constitute a tort for
which punitive damages are recoverable.

To the contrary, the

conduct alleged here could well be conduct that would also
constitute a tort for which punitive damages are recoverable, and
the Court, finding the Ryan Marine case a helpful guide on this
issue, cannot say that the plaintiff fails to state a claim under
Rule 12(b)(6).
Accordingly, IT IS ORDERED that the defendant’s motion to
dismiss is GRANTED in part as to the plaintiff’s fraud claim, and
DENIED in part as to the plaintiff’s claims for gross negligence,

17

recklessness, and punitive damages.

IT IS FURTHER ORDERED, that

the plaintiff is allowed leave, as requested, to amend its
pleading in accordance with this order.7

New Orleans, Louisiana, December 19, 2012

______________________________
MARTIN L. C. FELDMAN
UNITED STATES DISTRICT JUDGE

7

See Great Plains Trust Co. v. Morgan Stanley Dean Witter &
Co., 313 F.3d 305, 329 (5th Cir. 2002) (“[O]ur cases support the
premise that granting leave to amend is especially appropriate .
. . when the trial court has dismissed the complaint for failure
to state a claim . . . . In view of the consequences of
dismissal on the compliant alone, and the pull to decide cases on
the merits rather than on the sufficiency of pleadings, district
courts often afford plaintiffs at least one opportunity to cure
pleading deficiencies before dismissing a case, unless it is
clear that the defects are incurable or the plaintiffs advise the
court that they are unwilling or unable to amend in a manner that
will avoid dismissal.” (citations and internal quotation marks
omitted)).
18