News & Announcements



David Bland Appointed to the AAA’s National Roster of Arbitrators

Bland & Partners is pleased to announce the appointment of David Bland to the American Arbitration Association’s Roster of Arbitrators and Mediators. David will join the panel of highly accomplished and respected experts from the legal and business communities who offer their diverse experiences across a wide range of fields. The American Arbitration Association (AAA), is a not-for-profit organization with offices throughout the U.S. Former federal and state judges, attorneys with exceptional subject-matter expertise, and business owners who understand the essence of the dispute are trained in a comprehensive program by the AAA to manage the dispute resolution process with fairness and skill, and an eye towards time- and cost-efficiency. These neutrals are bound by AAA established standards of behavior and ethics to be fair and unbiased.

David has over 34 years experience in the prosecution and defense of complex construction, commercial and insurance cases in federal and state courts and appellate courts of Louisiana, Texas, Mississippi, New York and the United States Court of Federal Claims. This litigation practice includes substantial experience in domestic and international arbitration, including arbitrations conducted under the auspices of the AAA, International Centre for Dispute Resolution, London Court of International Arbitration, and United Nations Commission on International Trade Law. He has also been appointed as an arbitrator in energy and marine construction disputes.

David’s litigation and arbitration experience has included the preparation and prosecution of disputes related to delay, disruption and acceleration, warranty, design changes and defects, growth in scope of work, labor productivity/inefficiencies, force majeure, schedule and liquidated damages, change orders, bid protests, terminations for default and convenience, surety bond issues and related builder’s risk, business interruption and insurance claims and coverage disputes.

A related area of David’s expertise is the negotiation and drafting of all types of construction and commercial contracts, including vessel, rig, power plant, bridge, pipeline and equipment new construction and repair contracts, EPC contracts, engineering contracts, charter party contracts, master service agreements, drilling contracts, sales agreements, joint ventures and project teaming/alliance agreements. He is also routinely involved in all aspects of the construction process including negotiation of commercial terms in the bid phase, change order administration, delivery and close out issues and warranty disputes.

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Apache Corporation v. Great American Insurance Company
UNITED STATES FIFTH CIRCUIT HOLDS $7 MILLION “SOCIAL ENGINEERING” SCAM NOT COVERED BY “COMPUTER FRAUD” INSURANCE POLICY

On October 18, 2016, the United States Court of Appeals for the Fifth Circuit issued its Opinion in Apache Corp. v. Great American Ins. Co., 2016 WL 6090901. The Court reversed the district court’s holding that Apache was entitled to coverage under its crime protection insurance policy that insured losses as a result of alleged computer fraud. The Fifth Circuit found that just because a computer was used in perpetrating the fraud (in that the imposter had used email to send information relating to bank accounts to which improper payments were made), that did not mean that the “Computer Fraud” provision of Apache’s policy provided coverage. The Fifth Circuit held that the use of a computer was merely incidental to the fraudulent scheme and that there was, therefore, no coverage under the policy.

FACTS

In March 2013 an Apache employee in Scotland received a telephone call from a person identifying herself as a representative of Petrofac, a vendor of Apache. The caller asked Apache to change the bank account information for its payments to Petrofac. The Apache employee explained that such change would have to be made by a formal request on Petrofac letterhead. A week later, Apache’s accounts-payable department received such correspondence requesting the change from an email domain name that was facially similar to Petrofac’s domain name but was in reality one created to perpetrate the fraud. The email also advised that a letter had been mailed and included a number to call in order to verify the request. An Apache employee called the (also fraudulent) number and concluded that the change request was authentic. Another Apache employee approved and implemented the change. A week later, Apache was transferring funds for payment of Petrofac’s legitimate invoices to the new fraudulent bank account. About $7 million was transferred to the fraudulent account before the scheme was uncovered. Apache recouped some of the losses but still advanced a claim against the Great American policy well in excess of the $1 million deductible.

Apache argued that the claim was covered under the “Computer Fraud” provision of the Great American policy which provided coverage for “loss of ... money... resulting directly from the use of any computer to fraudulently cause a transfer...” Great American denied the claim on the basis that the loss did not result directly from the use of a computer and that the use of a computer did not cause the transfer of funds.

The district court granted Apache’s motion for summary judgment finding that the use of email was a “substantial factor” in the fraudulent scheme such that the claim was covered. The district court, however, denied Apache’s claim for statutory penalties under the Texas Insurance Code.

HOLDING

The Fifth Circuit noted that there was only limited authority (none of which was controlled under Texas law) interpreting the meaning of the phrase “the use of any computer to fraudulently cause a transfer.” After reviewing case law from other jurisdictions, the Fifth Circuit noted that the use of email was only part of the scheme and merely incidental to the occurrence of the authorized transfer of money. The Fifth Circuit stressed that the use of email in a fraudulent scheme did not automatically mean that was computer fraud, reasoning that: “To interpret the computer-fraud provision as reaching any fraudulent scheme in which an email communication was part of the process would... convert the computer-fraud provision to one of general fraud.”

INDUSTRY UPDATE

The opinion was designated by the Fifth Circuit as “unpublished,” meaning it is technically of limited precedential value but given the few appellate opinions considering cyber fraud and insurance coverage for that, it will likely still be an important case in this developing area of law. In any event, the case provides some useful reminders of certain general issues in the context of cyber fraud and insurance coverage.

First, it is worth noting that the Fifth Circuit was critical of Apache’s internal systems for preventing this type of fraud describing it as “flawed” going so far as to suggest that “arguably” Apache had actually invited the computer use that was central to the fraudulent insurance claim. The clear message from the Fifth Circuit was that insureds should have better internal systems to avoid such fraud and claims in the first place.

Second, this case represents the key point that insureds need to make sure that they have the right insurance coverage in place to guard against different risks. The Fifth Circuit appeared to see Apache is trying to force a claim into a policy wording that was not designed to cover such claims. There are insurance policies that would have provided coverage for Apache’s loss. In particular, a Social Engineering Fraud endorsement should provide coverage where cyber coverage may not. Insureds should work actively with their lawyers and brokers to make sure that they have the appropriate coverages to protect them from this new and growing area of fraud.

For more information contact: Matthew C. Guy, Member, Bland & Partners P.L.L.C.

Bland & Partners is a law firm with offices in Houston, Texas and New Orleans, Louisiana, that has substantial experience in the construction, marine, energy and insurance industries, offering exceptional legal representation and advice. With our specialized focus on specific industries, our accomplished team of partners and associates has obtained extraordinary results. It is this experience that allows us to provide you with the concise, actionable advice required to achieve your goals. For more information regarding this or other matters, please contact us.

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DANNY PATTERSON V. AKER SOLUTIONS, INC., et al.

We are pleased to report on a recent decision from the United States Court of Appeals for the Fifth Circuit in the Danny Patterson v. Aker Solutions, Inc. et al. matter, in which we served as counsel for Aker Subsea AS (“Aker Subsea”). In a matter of first impression, the Fifth Circuit conclusively held that the limited use of secondment agreements by a foreign entity, Aker Subsea, was insufficient contacts to subject that foreign entity to the jurisdiction of the United States courts.

Aker Subsea filed a FRCP 12(b)(2) Motion to Dismiss for lack of personal jurisdiction in the District Court. The District Court granted that motion and dismissed Aker Subsea. Patterson appealed, arguing that he use of eleven (11) secondment agreements to temporarily assign Aker Subsea employees to its domestic affiliate, Aker Solutions, Inc., were sufficient contacts with the United States as a whole to subject Aker Subsea to personal jurisdiction pursuant to FRCP 4(k)(2). The Fifth Circuit affirmed the District Court, holding that “Aker Subsea’s limited contracts with the United States – eleven secondment agreements – are insufficient to satisfy due process concerns. Thus, exercising general personal jurisdiction over Aker Subsea would be inappropriate.”

FACTS

Patterson, a U.S. citizen, allegedly sustained a knee injury while working aboard the M/V SIMON STEVIN, a Luxembourg-flagged vessel that was located off the coast of Russia. Patterson was working for Blue Offshore Projects BV (“Blue Offshore”) on a project to install subsea production equipment in a gas and condensate field. While aboard the M/V SIMON STEVIN, Patterson claims that he was struck by a cable and was injured. Patterson originally sued Blue Offshore and two other companies he alleged were involved in the project, Aker Solutions, Inc. (“Aker Solutions”) and FMC Technologies, Inc., in the Eastern District of Louisiana. Patterson alleged that the defendants’ negligence caused his injuries. Patterson later amended his complaint and added more defendants including Aker Subsea, FMC Kongsberg Subsea AS (“FMC Kongsberg”), and FMC Eurasia, LLC. Aker Subsea and FMC Kongsberg separately moved to dismiss for lack of personal jurisdiction. The district court allowed Patterson additional time to conduct jurisdictional discovery. After completion of the jurisdictional discovery, the district court found that neither specific nor general personal jurisdiction existed over Aker Subsea or FMC Kongsberg. Thus, it granted their motions and dismissed them from the suit. FMC Kongsberg ultimately settled leaving only Aker Subsea’s appeal pending.

Patterson argued that that the district court erred by dismissing Aker Subsea because, in his view, it has sufficient contacts with the United States to establish general personal jurisdiction under Federal Rule of Civil Procedure 4(k)(2). Patterson contended that over a three-year period, Aker Subsea entered into eleven secondment agreements whereby it would assign its employees to an American affiliate in Houston, Texas. Under the secondment agreements, the employees sent to the United States remained employees of Aker Subsea. Patterson argued that this showed continuous and systematic contacts in the United States sufficient to assert general jurisdiction over Aker Subsea. Aker Subsea argued that these sporadic contacts were insufficient.

HOLDING

The Fifth Circuit had to determine whether Aker Subsea had sufficient contacts with the United States to satisfy due process and authorize the exercise of personal jurisdiction over it. The Fifth Circuit determined that Aker Subsea’s lack of business contacts with the United States except for eleven secondment agreements, sending eleven employees to the United States over a brief period of time, did not rise to the level of making Aker Subsea essentially at home in the United States. The Fifth Circuit recognized that the Supreme Court has found a sufficient basis for the exercise of general jurisdiction over a non-resident defendant in only one modern case—Perkins v. Benguet Consol. Mining Co., 342 U.S. 437 (1952)—and determined that Aker Subsea’s contacts with the United States do not rise to the level of contacts in that instance.

The Fifth Circuit further determined that the mere sending of employees to the United States by Aker Subsea did not rise to the level of business presence required by other Fifth Circuit jurisprudence to exercise personal jurisdiction. It determined that Aker Subsea’s use of secondment agreements was distinguishable from other cases where the Fifth Circuit exercised general personal jurisdiction, such as companies continually calling on United States’ ports, advertising, and seeking out United States based business (System Pipe & Supply, Inc. v. M/V Viktor Kurnatovskiy, 242 F.3d 322, 325 (5th Cir. 2001) or foreign insurers insuring United States based companies and shipments to the United States and paying claims to such companies (Adams v. Unione Mediterranea Di Sicurta, 364 F.3d 646, 650 (5th Cir. 2004)).

The Fifth Circuit ultimately held that exercising personal jurisdiction over Aker Subsea under Rule 4(k)(2) would be appropriate only if Aker Subsea’s contacts with the United States as a whole are sufficient to satisfy due process concerns. Aker Subsea’s limited contacts with the United States—eleven secondment agreements—are insufficient to satisfy due process concerns. Thus, exercising general personal jurisdiction over Aker Subsea would be inappropriate.

INDUSTRY IMPACT

Many foreign businesses maintain United States-based domestic entities for the purpose of conducting business in the United States. It is common among foreign businesses to utilize secondment agreements as a method of providing a domestic affiliate with personnel having a particular expertise or experience on a temporary basis to take advantage of the experience or expertise of a business’ foreign affiliates. At the same time, secondment agreements typically allow a temporarily assigned employee to maintain the benefits accrued by the employee in his country of permanent residence.

The Fifth Circuit’s ruling makes clear that the utilization of secondment agreements by foreign entities to temporarily assign employees to a domestic affiliate will not alone subject a foreign entity to the jurisdiction of the United States’ courts. Thus, multi-national businesses should be secure in continuing the practice of seconding employees to domestic affiliates without fear of unknowingly being subject to lawsuits in the United States.

Bland & Partners is a law firm with offices in Houston, Texas and New Orleans, Louisiana, that has substantial experience in the construction, marine, energy and insurance industries, offering exceptional legal representation and advice. With our specialized focus on specific industries, our accomplished team of partners and associates has obtained extraordinary results. It is this experience that allows us to provide you with the concise, actionable advice required to achieve your goals. For more information regarding this or other matters, please contact us.

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Bland & Partners Wins Key Laches Victory in New York

LEOPARD MARINE & TRADING, LTD. V. EASY STREET LTD.

We are pleased to report on a recent decision from the United States District Court for the Southern District of New York (the “Court”) in the Leopard Marine & Trading, Ltd. v. Easy Street Ltd. matter, in which we served as counsel for Leopard Marine & Trading Ltd. (“Leopard”). The Court’s holding demonstrates that it is possible to succeed on a laches defense and underscores the necessity of taking timely actions to prevent an otherwise viable lien claim from being dismissed on the basis of laches.

Leopard filed a complaint in the Court seeking a declaratory judgment that Easy Street Ltd. (“Easy Street”) was time barred pursuant to the U.S. general maritime law doctrine of laches from enforcing its lien against Leopard’s vessel known as the M/V DENSA LEOPARD (the “Vessel”). Leopard and Easy Street each filed cross-motions seeking summary judgment on the laches issue. The Court granted Leopard’s motion for summary judgment, denied Easy Street’s motion for summary judgment and declared “enforcement of Easy Street’s lien barred by laches.”

FACTS

In June 2011, Leopard chartered the Vessel to Allied Maritime Inc. (“Allied”) pursuant to a written charter agreement, under which Allied was obligated to pay for fuel for the Vessel while on hire and agreed not to permit the assertion of any liens on the Vessel. During the hire period, on August 23, 2011, Allied procured US$848,847.60 worth of fuel from Easy Street for the Vessel. Contrary to the terms of the charter agreement, Allied’s bunker supply contract with Easy Street granted Easy Street a U.S. maritime lien upon the Vessel to secure payment for the fuel. Easy Street’s invoice to Allied for the fuel fell due on September 26, 2011. However, unbeknownst to Leopard at the time, Allied failed to pay Easy Street’s invoice.

At the end of the hire period, Allied redelivered the Vessel to Leopard on November 4, 2011 with bunker fuel remaining onboard. As required by the charter agreement, Allied was granted a credit against the final hire payment owed by Allied to Leopard in the amount of US$409,853.10 for the value for the remaining fuel onboard the Vessel.

Throughout late 2011 and most of 2012, Allied experienced severe cash flow difficulties and defaulted on its contractual obligations, including Easy Street’s invoice. Numerous creditors of Allied initiated Greek bankruptcy proceedings against it and, ultimately, on November 6, 2012, Allied was involuntarily declared bankrupt by a Greek bankruptcy court. Throughout the time period starting from Allied’s September 26, 2011 default on the invoice to its November 6, 2012 bankruptcy declaration, however, Easy Street took no legal action against Allied for the unpaid fuel invoice and did not make any attempt to assert its lien against the Vessel.

On March 30, 2015, over three-and-a-half years after Allied’s default on Easy Street’s invoice, Easy Street sent Leopard an email demanding payment of the unpaid invoice plus interest and legal fees, totaling US$1,394,807. Soon thereafter, on April 19, 2015, Easy Street arrested the Vessel in Panama on the basis of Allied’s default and to exercise its lien arising under the bunker supply contract. Leopard was compelled to post security in an amount exceeding $2 million to have the Vessel released.

While Leopard has defended against the arrest action in Panama, on April 20, 2015, it also initiated the parallel proceeding in the U.S. District Court for the Southern District of New York, in order to have one of the most active and respected admiralty courts in the U.S. determine whether Easy Street’s asserted lien was barred by the U.S. maritime doctrine of laches. In a preliminary ruling, the Court found that it had personal jurisdiction over Easy Street (a Cyprian entity) as a result of the forum selection clause in the bunker supply contract between Easy Street and Allied.

HOLDING

There is no statute of limitation governing the enforcement of liens under U.S. general maritime law. Instead, the timeliness of a lien enforcement action is determined by the doctrine of laches. Laches is an equitable defense based on the maximum “vigilantibus non dormientibus aequitas subvenit,” which means “equity aids the vigilant, not those who sleep on their rights.” In order to bar the enforcement of a maritime lien under the doctrine of laches, it must be proven that 1) the lien holder inexcusably delayed in enforcing its maritime lien and 2) the party against whom the lien is enforced has suffered prejudice as a result of that inexcusable delay. Here, Leopard successfully proved both elements of laches, namely, that Easy Street inexcusably delayed in enforcing its lien against the Vessel and that Leopard was prejudiced in several ways as a result of that inexcusable delay.

In regard to the first element of laches, Easy Street argued that its three-and-a-half year delay was excusable because 1) it had received and reasonably relied on verbal and written assurances from Allied that the invoice would be paid and 2) that there are legal barriers in most jurisdictions to arrest a vessel for enforcement of a lien for necessaries (i.e., bunker fuel). The Court rejected both of Easy Street’s excuses.

First, the Court held that regardless of whether Easy Street’s reliance upon Allied’s repeated but unfulfilled promises to pay was reasonable, such reliance constituted a choice by Easy Street to pursue its in personam remedies against Allied and to forego its in rem remedies against the Vessel. Thus, the election of a lien holder to not concurrently pursue its in rem lien rights would not serve as an excuse for delay.

Second, the Court agreed with Easy Street’s premise that, as a general rule, most jurisdictions in the world do not recognize maritime liens for necessaries. However, the Court found that exceptions to this general rule do exist and that such exceptions were relevant in this case. During the period of time prior to Allied’s November 2012 bankruptcy, the Vessel called on ports in Canada, Panama, South Korea, Brazil and Nigeria. The Court noted that Canada was one jurisdiction that takes a lex loci approach—it allows enforcement of a foreign maritime lien for necessaries arising under the law of the contract even though Canadian law itself does not create maritime liens for necessaries. Based on the fact that Easy Street admitted having arrested other vessels in Panama, South Korea, Brazil and Nigeria for unpaid fuel, the Court found that, in addition to the Vessel’s call in Canada, during the relevant time period, Easy Street had, but missed, several opportunities to arrest the Vessel at those ports. Accordingly, the Court rejected Easy Street’s claim that it did not have the opportunity to arrest the Vessel prior to April 2015.

In regard to the second element of laches, the Court found that Leopard was prejudiced because it had already paid for a substantial portion of the bunker invoice when it credited Allied for the fuel that remained onboard the vessel at the time of redelivery. The Court further noted that, as a result of Allied’s default of the charter agreement, Leopard had the contractual rights to seize the cargo onboard the Vessel during Allied’s charter of it and to bring an arbitration action against Allied for breach of contract. These rights were lost as a practical matter due to Easy Street’s delay and, therefore, Leopard suffered prejudicial harms that could have been prevented by Easy Street having taken action earlier.

INDUSTRY IMPACT

Although laches is a particularly fact-based determination, the Court’s ruling demonstrates that under the right circumstances, it can be a viable and complete defense to a lien claim. Thus, the ruling is important to both vessel owners and potential lien holders.

The lex loci approach adopted by Canada, which the Court noted in its ruling, appears to be gaining wider acceptance (See, for example, the recent decision of the Federal Court of Australia in Reiter Petroleum Inc. v The Ship “Sam Hawk” [2015] FCA 1005, in which a jurisdictional challenge to the arrest writ brought by the owner was rejected on the basis that jurisdiction could be established by a foreign maritime lien, even though Australian law does not create a lien for necessaries.) Vessel owners should not presume that their vessels will be shielded from arrest for unpaid necessaries so long as they avoid a limited number of jurisdictions, including U.S. ports. Likewise, suppliers of necessaries may benefit from having greater opportunities to exercise liens. However, if such opportunities are missed, there is a risk of lien remedies being extinguished by laches.

Suppliers of necessaries and other potential lien holders should also be cognizant that pursuit of in personam claims against their counter-contract party will not be sufficient by itself to avoid the defense of laches. Instead, such lien holders should concurrently investigate and, if possible, pursue their in rem remedies in order to ensure that its lien will not be barred by laches.

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Bland & Partners Wins Defense Limitation Action

Following a collision between a chemical tanker and a cargo ship that occurred on the Houston Ship Channel, Susan Noe-Wilson, Alan Folger, and Robert Vining of Bland and Partners proceeded with a Limitation Action in federal court in the Southern District of Texas seeking to exonerate or limit the liability of its client and its towing vessel. Claims totaling over $6,000,000 were filed in the Limitation Action for hull damage, cargo damage, loss of hire, temporary and permanent repairs, and other expenses caused by the collision. The trial was bifurcated, with the court addressing liability first. After considering the evidence, the Court granted a defense verdict in favor of the towing vessel and its owner, exonerating them from liability. In re the Complaint of the Tug Mr. Earl, LLC, as owner of the Mr. Earl, No. 4:12-cv-01292, Rec. Doc. 90.

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Southern District of New York Issues First Post Lozman Ruling on Vessel Status

Applying the recently clarified “reasonable observer” test created by the Supreme Court in Lozman v. City of Riviera Beach, 133 S. Ct. 735 (U.S. 2013), the Southern District of New York determined that a floating drydock was not a vessel, because “no reasonable observer….would consider [the Drydock] designed to a practical degree for carrying people or things over water.” Fireman Fund Ins. Co., et al, v. Great American Insurance Co., et al., 1:10-cv-01653, Rec. Doc. 211. The Court agreed that the drydock was not designed to and did not regularly transport people or things over water. It lacked any independent ability to propel itself, navigational lights, life boats, or a wheel house. The drydock had been more or less permanently moored for the past few years.

In light of the Lozman decision, the Supreme Court also vacated and remanded Lemelle v. St. Charles Gaming Co., Inc., 2011-255 (La. App. 3 Cir. 1/4/12) writ denied, 2012-0339 La. 4/27/12, 86 So. 3d 627 and cert. granted, judgment vacated, No. 12-130, 2013 WL 215486 (U.S. Jan. 22, 2013). In this case, the Court of Appeal of Louisiana determined that a riverboat casino was not a vessel, because it was practically incapable of transportation over water, noting that the riverboat had been connected to the dock by lines and cables since 2001, had not sailed since 2001, and was no longer inspected by the Coast Guard. On remand, the Court of Appeal will apply the Lozman test to determine whether the riverboat casino was in fact capable of transportation over water.

Dated: February 6, 2013

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Bland & Partners Scores Another Victory in the U.S. Fifth Circuit Court of Appeals

We want to share an important decision by the United States Fifth Circuit Court of Appeals upholding a liquidated damages ("LD") clause in a maritime contract. Bland & Partners serves as counsel for Delta in this matter.

On January 8, 2013, the Fifth Circuit issued an opinion upholding the enforceability of a non-compete LD provision in a vessels sales agreement between International and Delta. Case: 12-30280, Document: 00512105709. The Fifth Circuit found the LD provision to be enforceable under maritime law as International failed to prove that the per-occurrence damage amount in the contract did not reasonable relate to Delta's anticipated damages.

In 2006, Delta sold two tugboats to International under a Vessels Sales Agreement ("VSA"). The sales price was $4 million for both vessels, which price the parties specified was below fair market value in partial consideration for the non-compete provision. The VSA included a covenant that International would not charter out the vessels unless it first provided Delta the opportunity to do so. In the event Delta declined to charter out the vessels, International was free to do so, but was required to pay Delta 10% of the total charter. In the event that International breached the non-compete provision by chartering out the vessels, International was obligated to pay Delta $250,000 in LDs per violation, a figure that had been heavily negotiated by the parties.

Approximately two years after the sale, Delta notified International that Delta discovered breaches of the non-compete provision of the VSA and made demand for the LDs under the VSA. The parties then filed competing claims in the Eastern District of Louisiana, where the district court ruled that the LD provision was not an unenforceable penalty; thereafter, International appealed this certified issue to the Fifth Circuit.

The Fifth Circuit recognized that the VSA, and particularly its LD provision, was preceded by several months of negotiations, during which Delta expressed its concerns over competition. Additionally, the Fifth Circuit acknowledged that International was clear during negotiations that the vessels were for "in house" use and would not be used to compete with Delta.

With the above facts anchoring the Fifth Circuit's analysis, the Fifth Circuit then applied its two factor test for determining the enforceability of an LD clause, i.e.: (1) the reasonable relation of the LDs to anticipated or actual loss caused by the breach and (2) the difficulty of proof of loss. In examining the second factor first, the Fifth Circuit found here that it is difficult to calculate/prove covenant-not-to-compete damages, such as those anticipated by Delta, so the Court has "more leeway" in determining whether the first factor -- reasonable relation of liquidated damages to anticipated damages -- is met.

The anticipated damages viewed by the Fifth Circuit here were, most importantly, those potentially flowing from Delta's inability to prevent competition. In reaching its decision that the first factor was met, the Fifth Circuit found persuasive that the district court judge assessed expert testimony on potential charter contracts and rates and, as a result, determined that it could not bicker with the LD amount agreed by the parties as a reasonable per occurrence forecast of damages.

This Fifth Circuit decision is an important one in maritime law for the enforceability of liquidated damages provisions where the losses incurred due to breach of contract are inherently difficult to prove, such as in the context of non-compete agreements. In such situations, the Fifth Circuit will give "more leeway" in determining whether the liquidated damages provision is reasonably related to anticipated or actual losses. In non-compete agreements, in the context of buying and selling vessels or otherwise, actual damages are almost always difficult, or even impossible, to prove. As such, when applying the two-factor test, courts in the Fifth Circuit will likely look to the reasonableness of anticipated damages.

Businesses entering into maritime non-compete agreements, whether for the buying and selling of vessels or otherwise, should take this case into consideration when including a LD provision. LD amounts are likely to be enforced where the parties negotiated the terms and the LD amount bears a relation to anticipated damages.

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Fifth Circuit Upholds a Contract Incorporating Website Terms and Conditions By Reference

In One Beacon v. Crowly Marine Services, the United States Court of Appeals for the Fifth Circuit recently held that maritime contracts may incorporate terms from a website by reference just as terms from paper documents are incorporated by reference.

The case involved a subcontractor's employee who was injured while working on a barge and filed a personal injury suit against both the owner of the barge and the contractor. The barge owner sought to enforce the defense and indemnity provisions under the contractor's insurance policy as an "additional insured". The insurer denied coverage because the contractor failed to request that the insurance company add the barge owner as an "additional insured" under the contractor's policy. The barge owner then filed a third party demand against the contractor alleging that the contractor was obligated to defend and indemnify the barge owner pursuant to the terms of a repair service order ("RSO") that was issued after the parties entered into an oral contract for the relevant work. The RSO referenced and incorporated certain terms and conditions that were available on the barge owner's website. The owner of the barge also asserted a breach of contract claim based on the contractor's failure to name the barge owner as an "additional insured" to various insurance policies.

On appeal, the United States Court of Appeals for the Fifth Circuit held that the contract entered into by the barge owner and contractor consisted of both their oral agreement and the RSO incorporating the terms and conditions on the barge owner's website. The Court explained that incorporation by reference is acceptable and enforceable in contract formation and the incorporated terms will bind the parties when the terms are readily accessible at all relevant times. The Court noted that the terms and conditions were "plainly and conspicuously" incorporated by both the repair service order for the work at issue, as well as in the parties' service orders relating to prior repair service jobs.

DRAFTED SEPTEMBER 6, 2011

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