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Limitation of Liability - Effect of Notice to a Single Co-Owner

By William M. Burst

The Limitation of Liability Act provides, inter alia, that a vessel owner may petition a district court of competent jurisdiction for limitation of liability within six months of receiving written notice of a claim.  See generally 46 U.S.C.A §§ 30501-30512 (West 2010).  If the vessel owner fails to petition the court and the six month period lapses, it is thereafter precluded from seeking the Act's protection.  The Act, however, does not address the effect that one co-owner's failure to file a petition for limitation has on another co-owner's right to subsequently seek limitation of liability. In other words, if co-owner 'X' of a vessel receives notice of a claim against it and fails to file for limitation of liability within the requisite six-month period, is co-owner 'Y,' who did not receive notice, precluded from filing for limitation of liability?

The Middle District of Florida is the only court to have addressed this issue.  See In re Complaint of LADY JANE, INC., 818 F. Supp. 1470 (M.D. Fla. 1992).  In LADY JANE, the court held that a co-owner of a vessel who has not received notice of a claim against it cannot be prejudiced by another co-owner's failure to file for limitation of liability within six months of a claim being asserted against only her. Id. at 1474.

The court addressed a scenario in which a vessel was owned by a corporation with a lone shareholder.  The shareholder received notice of a claim against her, but the corporation did not.  Six months passed without any filing for limitation of liability.  Thereafter, the corporation sought protection under the Limitation of Liability Act.  After determining that the shareholder and the corporation were both owners of the vessel, the court addressed whether notice to one owner (the shareholder) and her subsequent failure to file for limitation, precluded the other owner (the corporation) from filing same.  The court held that the corporation had never been on notice of any claim against it and as such, it could seek protection under the Act.  Thus, in the aforementioned scenario, if co-owner 'X' fails to file for limitation of liability within six months of receiving written notice, and co-owner 'Y' subsequently receives notice of a claim against it, co-owner 'Y' is not prejudiced by the failures of co-owner 'X.'

Notably, LADY JANE cites no authority to support its holding nor is LADY JANE cited in any other federal opinions.  It appears that, at this time, LADY JANE is the only authority on this matter.
 

Full post as published by Louisiana Law Blog on May 19, 2010 (boomark / email).