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Barnes v. Sea Hawaii Rafting, LLC

United States Court of Appeals, Ninth Circuit

March 28, 2018

Chad Barry Barnes, Plaintiff-Appellant,
v.
Sea Hawaii Rafting, LLC; Kris Henry; John Does 1-20; Mary Does 1-20; Doe Corporations 1- 20; Doe Partnerships 1-20; Doe Associates 1-20; Doe Governmental Agencies 1-20; Other Entities 1-20, In Personam; M/V Tehani; Kristin Kimo Henry, Debtor in U.S. Bankruptcy Court, District of Hawaii - Chapter 13 Bankruptcy Case # 14-01475 (re: doc no. 142) also known as Kris Henry; Dane S. Field, Trustee of the bankruptcy estate of Sea Hawaii Rafting, LLC, Defendants-Appellees.

          Argued and Submitted June 16, 2017 Honolulu, Hawaii

          Appeal from the United States District Court for the District of Hawaii D.C. No. 1:13-cv-00002-ACK-RLP Alan C. Kay, Senior District Judge, Presiding

         COUNSEL

          Jay Lawrence Friedheim (argued), Admiralty Advocates, Honolulu, Hawaii; John C. Gibson, Honolulu, Hawaii; for Plaintiff-Appellant.

          Simon Klevansky (argued), Alika L. Piper, and Nicole D. Stucki, Klevansky Piper LLP, Honolulu, Hawaii, for Defendants-Appellees.

          Before: Raymond C. Fisher, Richard A. Paez, and Jacqueline H. Nguyen, Circuit Judges.

         SUMMARY[*]

         Maritime Law

         The panel reversed the district court's dismissal of a seaman's claims in admiralty against a vessel in rem, issued a writ of mandamus to the district court to award the seaman maintenance, denied a motion to dismiss the appeal as moot, and remanded the case to the district court.

         The seaman was injured when the vessel on which he was working exploded. He sued the vessel in rem, and he sued the company that owned the vessel and the company's owner and manager in personam, seeking to enforce his seaman's lien against the vessel.

         The panel held that it had jurisdiction under 28 U.S.C. § 1292(a)(3) to review the district court's interlocutory order dismissing the seaman's claims against the vessel because the order affected the seaman's substantive rights. The panel concluded that it lacked jurisdiction to review the district court's denial of summary judgment as to a maintenance amount, but it treated the notice of appeal as a mandamus petition.

         The panel held that the district court erred in staying the action when the vessel owner declared bankruptcy and in dismissing the seaman's claims against the vessel for lack of in rem jurisdiction. The panel concluded that the district court obtained jurisdiction over the vessel when the seaman filed a verified complaint and the defendants appeared generally and litigated without contesting in rem jurisdiction, and the seaman's failure to verify his amended complaint did not divest the district court of in rem jurisdiction. The district court did not lose in rem jurisdiction while the vessel remained in its constructive custody, and the court's control over the vessel, once obtained, was exclusive. The vessel owner's later-filed bankruptcy petition did not divest the district court of in rem jurisdiction. Moreover, the automatic bankruptcy stay did not affect the seaman's maritime lien against the vessel, and the bankruptcy court had no authority to dispose of the lien through the application of bankruptcy law.

         The panel denied the bankruptcy trustee's motion to dismiss the appeal as moot after the trustee, with the bankruptcy court's approval, sold the vessel purportedly free and clear of the seaman's maritime lien.

         The panel held that the district court erred by denying the seaman's maintenance requests in full. The panel held that when a seaman establishes his entitlement to maintenance and provides some evidence of his actual living expenses, the burden shifts to the vessel's owner to produce evidence that the seaman's actual costs were unreasonable. Whether or not the vessel's owner produces such evidence, the seaman is entitled to a maintenance award in the amount of his actual costs up to the reasonable rate in his locality. The panel issued a writ of mandamus to the district court to award the seaman maintenance for his undisputed actual and reasonable expenses of $34 per day, subject to a potential increase after trial.

          OPINION

          NGUYEN, Circuit Judge

         Chad Barnes is a seaman who was injured when the boat on which he was working, the M/V Tehani, exploded. During his recovery, Barnes received some monetary assistance from either Sea Hawaii Rafting, LLC ("SHR"), which owned the Tehani, or Kris Henry, SHR's owner and manager, but those payments soon stopped. Seeking the ancient maritime remedy of maintenance and cure, [1] among other relief, Barnes sued the Tehani in rem and SHR and Henry in personam to enforce his seaman's lien against the vessel. Although admiralty courts normally handle such matters expeditiously, that did not happen here for two reasons.

         First, the district court rejected Barnes's pretrial requests to enforce SHR's obligation to pay maintenance and cure. The court concluded that Barnes was entitled to maintenance and cure and had demonstrated his actual maintenance expenses. Nonetheless, despite undisputed evidence that Barnes was entitled to at least some of his actual expenses, the district court declined to award Barnes any maintenance until trial.

         Second, when SHR declared bankruptcy after fifteen months of litigation and shortly before trial, the district court stayed Barnes's action. The district court concluded that the Tehani was an asset of the debtor's estate and that the automatic bankruptcy stay barred proceedings to enforce

          Barnes's maritime lien against the vessel. The bankruptcy court partially lifted the bankruptcy stay to allow the district court to evaluate Barnes's claims against SHR but expressly prohibited the district court from issuing any ruling that would affect the maritime lien's status.

         Ultimately, the district court dismissed Barnes's claims against the Tehani. The court reasoned that it lacked in rem jurisdiction because, even though Barnes verified his original complaint, he failed to verify the amended complaint. Then, while Barnes's appeal was pending, the bankruptcy trustee-with the bankruptcy court's approval- sold the Tehani purportedly free and clear of Barnes's maritime lien. The trustee subsequently moved to dismiss this appeal as moot.

         We conclude that the district court erred by denying Barnes's maintenance requests in full, staying the action, and dismissing the Tehani. The district court obtained jurisdiction over the vessel Tehani when Barnes filed a verified complaint and the defendants appeared generally and litigated without contesting in rem jurisdiction. The district court did not lose in rem jurisdiction while the Tehani remained in its constructive custody. And the court's control over the vessel, once obtained, was exclusive. SHR's later-filed bankruptcy petition did not divest the district court of in rem jurisdiction. Moreover, the automatic bankruptcy stay did not affect Barnes's maritime lien against the Tehani, and the bankruptcy court had no authority to dispose of the lien through the application of bankruptcy law.

         When, as here, a seaman establishes his entitlement to maintenance and provides some evidence of his actual living expenses, the burden shifts to the vessel's owner to produce evidence that the seaman's actual costs were unreasonable. Whether or not the vessel's owner provides such evidence, the seaman is entitled to a maintenance award in the amount of his actual costs up to the reasonable rate in his locality. Over three years after concluding that Barnes was entitled to maintenance and had sufficiently proven his actual costs, the district court has yet to award him any maintenance.

         Accordingly, we deny the trustee's motion to dismiss, reverse the district court's dismissal of the Tehani, and issue a writ of mandamus to the district court to award Barnes maintenance for his undisputed actual and reasonable expenses-$34 per day-subject to a potential increase after trial.

         I.

         A. Factual Background

         Barnes worked for SHR for six years as a captain and crew member of the Tehani, a 25-foot rigid hull inflatable boat powered by twin outboard engines. Barnes took passengers from Honokohau Harbor on sightseeing and snorkeling trips along the Kona coast. Henry paid Barnes under the table with personal checks made out to "cash."

         On July 3, 2012, Henry and Barnes were launching the Tehani for a night snorkeling trip. Henry was in his truck, towing the Tehani on an attached trailer, and Barnes was onboard the boat. Henry backed the trailer down the launch ramp until the vessel was in the water. When Barnes started the starboard engine, the Tehani exploded. The hatch struck Barnes on his back and head, propelling him into the ocean.

         A Coast Guard investigation found that the explosion was caused by a fuel tank with a missing screw in the fuel tank sender. Fuel leaked into the bilge, where vapors accumulated and ignited when Barnes started the engine.

         The investigator concluded that the incident might have been avoided if Henry had installed the required flammable vapor detector and mechanical exhaust system. See 46 C.F.R. §§ 182.460, 182.480. The boat, which was insured, was subsequently repaired and returned to service.

         Barnes was less fortunate. SHR lacked insurance to cover his medical expenses for physical, psychological, and neurological treatment. Barnes required approximately 12 staples to reattach parts of his scalp. Due to his head injuries, he can no longer drive a car or swim. He cannot afford rent and has been living on friends' couches. He receives approximately $300 per month in disability income from the State of Hawaii.[2]

         B. Litigation in the District and Bankruptcy Courts

         On January 1, 2013, Barnes filed a verified complaint in admiralty against Henry, SHR, and the Tehani, claiming unseaworthiness, various theories of negligence, and intentional infliction of emotional distress. Barnes sought maintenance and cure, damages, and attorney's fees. The three defendants answered the complaint. Despite denying Barnes's allegation that the Tehani was subject to the district court's in rem jurisdiction, they did not move to dismiss the Tehani on that basis but instead proceeded to litigate the dispute.

         Barnes moved for "summary judgment for payment of maintenance and cure, " requesting that the district court order defendants to pay his "reasonable, actual costs of food and lodging" and medical costs since the date of his injury until he reached "maximum medical cure." The district court granted Barnes's motion in part. Noting that defendants did not dispute that Barnes was injured in the service of the Tehani, the district court ruled that Barnes was entitled to maintenance and cure and had not yet reached maximum cure. Applying the standard for determining a maintenance rate from Hall v. Noble Drilling (U.S.) Inc., 242 F.3d 582 (5th Cir. 2001), the district court concluded that Barnes had shown his actual food and lodging costs but not the reasonable amount for such costs in Honolulu or his actual medical expenses. The court therefore declined to award either maintenance or cure.

         About four months after the district court's order, Henry volunteered to pay Barnes $962.83 per month towards maintenance but stopped after making two payments. Barnes moved two more times for summary judgment to determine a daily maintenance rate.[3] The district court denied both motions, concluding that there were triable issues of fact regarding reasonable food and lodging costs in Hawaii. The district court also denied Barnes's separate motion for summary judgment for payment of cure.

         Meanwhile, Barnes filed an unverified amended complaint, adding a claim for negligence per se. In answering the amended complaint, defendants again stated a general denial of Barnes's allegation that the Tehani was subject to the district court's in rem jurisdiction but did not specifically challenge jurisdiction by filing a motion under Federal Rule of Civil Procedure 12(b) or otherwise bringing the issue to the district court's attention.

         In yet another summary judgment motion, Barnes asked the district court to grant relief on his claims for unseaworthiness, negligence per se, and Jones Act negligence. Two weeks before the hearing on this motion and just over a month before the scheduled trial, SHR and Henry filed for bankruptcy relief-Henry for reorganization under Chapter 13 and SHR for dissolution under Chapter 7. Pursuant to the automatic bankruptcy stay, 11 U.S.C. § 362(a), the district court stayed the proceedings against all three defendants.

         The bankruptcy court, recognizing the district court's "experience and expertise . . . in matters in admiralty, " partially lifted the stay as to Henry and SHR so that the district court could "adjudicate the validity, extent, amount, and date of perfection of any maritime lien claim by . . . Barnes against the [Tehani]."[4] However, the bankruptcy court expressly kept the stay in place "to bar the enforcement of any maritime lien." The bankruptcy court expressed concern that the "limited assets" of SHR's estate did not warrant the bankruptcy trustee's "participat[ion] in extended or unlimited litigation in the District Court."[5]

         After the bankruptcy court partially lifted the stay, the district court reopened the case. In a subsequent minute order addressing Barnes's outstanding summary judgment motions, the district court noted-sua sponte and parenthetically-that "it lack[ed] jurisdiction over the [Tehani], as [the vessel] was never arrested." Thereafter, Barnes attempted several times to verify the amended complaint-a verified complaint being a precondition of arrest, see Fed. R. Civ. P. Supp. Adm. & Mar. Cl. R. C(2)(a)-though Barnes made no attempt to arrest the Tehani. The trustee in SHR's bankruptcy case conceded to the district court that defendants' "pre-petition answer subjected [them] to the [district court's] jurisdiction." The trustee acknowledged the district court's previous statement that it lacked in rem jurisdiction but did not seek dismissal on that ground. Rather, the trustee argued that Barnes had lost any maritime lien he had in the vessel through his failure to verify the amended complaint and invoke the district court's in rem jurisdiction. Henry also did not seek dismissal for lack of in rem jurisdiction.[6]

         The district court nonetheless dismissed the Tehani for lack of in rem jurisdiction and, in the same order, granted Barnes partial summary judgment on his claim for negligence per se. In dismissing the Tehani, the district court reasoned that Barnes's unverified amended complaint- filed after more than 15 months of litigation-superseded the original verified complaint; Barnes's attempts to verify the amended complaint while the bankruptcy stay was in effect were invalid; verification of the amended complaint was necessary for his maritime lien against the Tehani to attach; and Barnes's failure to verify the amended complaint deprived the district court of in rem jurisdiction.

         Barnes appeals the district court's orders dismissing the Tehani and denying his request to set a maintenance amount. While his appeal was pending, the bankruptcy court approved, and SHR's bankruptcy trustee executed, the sale of the Tehani and its trailer to Henry's new company, Aloha Ocean Excursions, LLC, for $35, 000.

         II.

         Jurisdiction

         We begin by considering our own jurisdiction as to each issue raised on appeal. See Ashcroft v. Iqbal, 556 U.S. 662, 671 (2009) ("Subject-matter jurisdiction . . . should be considered when fairly in doubt." (citing Arbaugh v. Y & H Corp., 546 U.S. 500, 514 (2006))); Gupta v. Thai Airways Int'l, Ltd., 487 F.3d 759, 769-70 (9th Cir. 2007) ("[A]ppellate courts must examine each claim or issue presented separately to determine their jurisdiction on interlocutory appeal . . . ." (citing Will v. Hallock, 546 U.S. 345, 349 (2006))). The district court, sitting in admiralty, had jurisdiction under 28 U.S.C. § 1333(1). SHR's bankruptcy trustee asserts that if this appeal is not moot, we have appellate jurisdiction under 28 U.S.C. § 1291 to review the dismissal of the Tehani because "[a]n order of dismissal is a final order." But the district court dismissed only the Tehani. "'[A]ny order or other decision, however designated, that adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties' is not final" unless the district court determines there is no just reason for delay and enters judgment. Hyan v. Hummer, 825 F.3d 1043, 1046 (9th Cir. 2016) (per curiam) (quoting Fed.R.Civ.P. 54(b)) (emphasis in Hyan). That did not happen here.[7] Thus, this appeal is interlocutory.

         Barnes and Henry suggest 28 U.S.C. § 1292(a)(3) as the source of our jurisdiction, which permits appeals from "[i]nterlocutory decrees of . . . district courts . . . determining the rights and liabilities of the parties to admiralty cases in which appeals from final decrees are allowed." This means orders that decide "the merits of the controversies between [the parties], " because "'rights and liabilities' . . . are substantive in nature-not adjective, tactical, or procedural." Rogers v. Alaska S.S. Co., 249 F.2d 646, 649 (9th Cir. 1957) (quoting In re Wills Lines, 227 F.2d 509, 510 (2d Cir. 1955)). In determining whether a ruling decides the merits, we consider "financial realities, " All Alaskan Seafoods, Inc. v. M/V Sea Producer, 882 F.2d 425, 428 (9th Cir. 1989), as well as other "practical matter[s], " Kesselring v. F/T Arctic Hero, 30 F.3d 1123, 1125 (9th Cir. 1994).

         In Melwire Trading Co. v. M/V Cape Antibes, we concluded that 28 U.S.C. § 1292(a)(3) applied to an order dismissing a vessel for lack of in rem jurisdiction. 811 F.2d 1271, 1273 (9th Cir. 1987). In concluding that we had jurisdiction, however, we construed "the actual basis for the district court's dismissal" to be "its conclusion that none of [the plaintiff's] claims gave rise to a maritime lien enforceable in an action in rem, " a question that "involves the merits." Id. at 1273 n.1 (citing The Resolute, 168 U.S. 437, 440 (1897)). Here, there is no doubt that Barnes had a seaman's lien, and the Tehani's dismissal was due to Barnes's purported procedural shortcomings in invoking the district court's in rem jurisdiction. Because this type of dismissal is "not an adjudication upon the merits, " Neifeld v. Steinberg, 438 F.2d 423, 432 (3d Cir. 1971); cf. Kendall v. ...


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