Detained Vessel Has No Claim for Damages under Act to Prevent Pollution from Ships
District of Columbia District Court First to Interpret Damages Provision of APPS
By Haley Guepet
Angelex Ltd. v. United States, 2017 U.S. Dist. LEXIS 159810, 2017 WL 4355920.
In April 2013, the M/V ANTONIS S. PAPPADAKIS (“the vessel”) arrived at the Port of Norfolk to load a shipment of coal. While there, Coast Guard officers boarded the ship for a routine inspection where a crew member provided them with a note and a photograph of a “magic pipe” designed to bypass environmental safety features on the vessel. This “magic pipe” was intended to bypass the ship’s oily water separator, causing oily bilge waste to be pumped overboard without removing contaminants. Upon this finding, the Coast Guard began an investigation into the vessel’s compliance with the Act to Prevent Pollution from Ships (“APPS”). Angelex, Ltd., the vessel’s owner, Kassian, the vessel’s International Safety Management company, and the Chief Engineer were charged with criminal violations. While charges were pending, the Coast Guard refused to reinstate a clearance allowing the vessel to return to sea unless a bond of $2.5 million was posted, the parties agreed to other non-monetary agreements as well. The agreements were not met and both the owner and International Safety Management manager were acquitted. The vessel’s departure clearance was reinstated and departure set for September 2013.
Plaintiff, Angelex, filed suit against Defendant, the United States of America (hereinafter “the Government”), under 33 U.S.C. 1904(h) for damages sustained by the five-month departure delay. Section 1904(h) states: “A ship unreasonably detained or delayed by the Secretary acting under the authority of this chapter is entitled to compensation for any loss or damage suffered thereby.”
Plaintiff contends that the Coast Guards act, including the $2.5 million bond and other non-monetary conditions resulted in an unreasonable delay of the vessel.
A. The Act to Prevent Pollution from Ships
The Act to Prevent Pollution from ships is a federal statute utilizing the International Convention for the Prevent of Pollution from Ships, or MARPOL. MARPOL is an international treaty that looks to achieve “the complete elimination of intentional pollution of the marine environment by oil and other harmful substances and the minimization of accidental discharge of such substances.” The treaty requires that vessels only discharge oily water at sea if special equipment is used and also requires that all discharges be logged in an oil record book, which the government must be able to inspect.
Under the APPS, violating MARPOL is unlawful. Further, any ship violating MARPOL, APPS, or any other similar regulations, is liable in rem for a criminal fine or civil penalty.
B. Withdrawal of the Pappadakis’s Departure Clearance
Investigation of the vessel’s oil record book revealed no entries recording the direct discharge of oily bilge water without being processed through the oily water separator. The inspectors discovered that the oily water separator was not even usable. On April 19, 2013, after the investigation was finished, the Coast Guard sent Angelex and Kassian a letter informing them of the “evidence establishing reasonable grounds to believe” the vessel was in violation of MARPOL and APPS. The Coast Guard requested that the vessel’s departure clearance be withheld, and provided no further indication or evidence as to the reason. The CBP withheld clearance and the Coast Guard informed Angelex that the vessel’s departure clearance would be reinstated upon adequate surety.
Angelex and the Coast Guard discussed terms and conditions for reinstating the vessel’s clearance. The Coast Guard’s terms included a Security Agreement that involved Angelex and Kassian paying living costs and wages for crew members who were material witnesses and who were to appear in court, maintaining the employment of crew members remaining in the jurisdiction, authenticating documents seized from the vessel, and other similar terms.
Angelex and Kassian stipulated that they could not afford the bond and the vessel was encumbered with a mortgage that exceeded the value of the vessel. The Coast Guard maintained that until the bond was paid, the vessel would remain in the district. The parties did not reach an agreement therefore, the vessel’s departure clearance remained withheld.
C. Litigation in the Fourth Circuit
Angelex filed an emergency petition in the District Court for the Eastern District of Virginia for a reinstatement of the vessel’s departure clearance. During a recess, the parties negotiated and reached an agreement in principle that Angelex would accept all non-financial conditions if the Coast Guard would accept a bond of $1.5 million. The Coast Guard rejected this proposal, refusing to accept nothing less than $2.5 million.
Judge Doumar ruled on Angelex’s petition and found that the Coast Guard abused its discretion in demanding the bond and imposing other conditions. The court ordered a bond of $1.5 million along with other non-monetary conditions. The Government requested the district court stay this order and appealed requesting a stay from the United States Court of Appeals for the Fourth Circuit. The Government’s appeal claimed the district court lacked subject matter jurisdiction.
The Fourth Circuit agreed that the district court lacked jurisdiction, reversed its decision, and held that the Coast Guard’s view on the vessel’s release was unreviewable because the Administrative Procedure Act (“APA”) did not permit review of agency actions.
The Fourth Circuit concluded that admiralty jurisdiction was also inapplicable and remanded the case to the district court for dismissal.
D. Criminal Trial and Release of the Pappadakis
A grand jury for the Eastern District of Virginia returned an eight-count indictment against Angelex, Kassian, and the vessel’s chief engineer. The indictment included three charges of violations to maintain an accurate oil record book. Angelex and Kassian were acquitted, but the engineer was convicted of all charges, except for conspiracy.
At this time, the Coast Guard notified Angelex that the vessel’s departure clearance had been reinstated and that it would be able to depart, after being held for almost five months.
E. Present Action
In January 2015, Angelex filed suit under 33 U.S.C. § 1904(h). The Government then filed a motion to dismiss the complaint in entirety. The court held that Angelex failed to allege sufficient facts to support a claim that the Coast Guard’s withholding of the vessel was unreasonable, though the court’s holding did not dismiss the claim entirely. Angelex’s claim was about more than just the unreasonableness of the withdrawal, but also included the “Coast Guard’s continued detention” of the vessel for almost five months.
There were few facts at dispute in this case, and those that were in dispute were immaterial to the case. Angelex was not seeking review of the Coast Guard’s detention, but rather, compensation for unreasonable delay of the vessel’s departure.
The main issues of the case are what constitutes an unreasonable delay and whether the Government’s continued withholding of the Pappadakis’s departure clearance resulted in this delay.
A. Ships “Unreasonably Delayed Under 33 U.S.C. § 1904(h)
Angelex asserted the plain definition of “unreasonable” via Merriam Webster: “not governed by or acting according to reason; exceeding the bounds of reason or moderation.”
The court, however, stated that this shed no light on the given case and Angelex offered no analogous cases to provide further analysis on what is unreasonable.
On the other hand, the Government first argued that it should enjoy one of two presumptions. First, that the Coast Guard’s withholding of a departure clearance should be considered presumptively reasonable whenever there is “reasonable cause” to withdraw departure clearance and that they should “win the day ‘[a]bsent some fundamental change in the complexion of the evidence that led to a finding of reasonable cause.’” But under this interpretation, only unreasonable detentions would ever be compensable and text on unreasonable delays would become meaningless.
The court found this argument flawed because the text of 1904(h) authorizes compensation for both unreasonable detentions and unreasonable delays. Section 1904(h) states: “A ship unreasonably detained or delayed by the Secretary acting under the authority of this chapter is entitled to compensation for any loss or damage suffered thereby.”
The court stated that the Government’s interpretation would produce an “inoperative or superfluous, void or significant result” if the statute was interpreted as the Government argues it.
Second, the Government argued that Congress authorized DHS (Department of Homeland Security) to negotiate terms “satisfactory to the Secretary” under 1908, arguing that the proposed terms are reasonable as a matter of law and should only be considered as rebutted with evidence showing that the departure conditions of the vessel were so inconsistent with the agency’s mission of implementing APPS that the Secretary should never have found them satisfactory.
The court believed that “reasonableness,” under 1904(h) may be understood as “imposing an obligation on the Government to balance its own specific and legitimate enforcement interests with the interest of the vessel’s other stakeholders.” Under this analysis, the court looked to discern the specific and legitimate governmental interests involved. The statute requires that a vessel be withheld when there is “’reasonable cause’ to believe that the vessel violated the APPS” and may only be authorized when a bond or surety is posted.
The court had to be mindful of the Government’s discretion, but the scope of review in such a case must be narrow and the court “should defer to the government’s judgment as long as its actions fall within a range of reasonable outcomes.”
B. Pappadakis’s Ability to Satisfy Future Fines and Penalties
Angelex argued that the continued withholding was unreasonable because the vessel provided no assurance any penalty or fines were being satisfied. Angelex claimed the vessel was encumbered by a mortgage which exceeded the value of the ship, which would prime any judgment from the government. However, the court records only indicate there were two email documents supporting evidence of a lien on the vessel, which provides only that the vessel “’is encumbered with $10.95 million in mortgage indebtedness.” These documents were not admitted because they were considered hearsay.
Because both Angelex and Kassian are foreign entities, the court stated that the Coast Guard’s possession of the vessel provided more security than its release and a better chance for the Government to recover future fines.
C. The Government’s Decision to Refer Criminal Charges Against Angelex and Kassian
Angelex’s arguments for reinstating the vessel’s departure clearance fall into two categories. The first are arguments on financial terms of the bond and second is nonfinancial terms of the Security Agreement. These terms were intended to ensure that the Government could “collect fines and penalties that might be assessed in criminal or civil proceedings…against Angelex and Kassian.”
Angelex raised two points regarding the Government’s decision to refer charges against them and Kassian. The first being that the decision was unreasonable because Kassian could not have criminal liability under APPS since it was not the vessel’s operator and was not responsible for it while at the port. The second is that it was unreasonable to refer charges against either of them because the investigation found no evidence to support vicarious liability for the crew’s criminal actions.
The Government disputed these arguments, claiming the evidence demonstrated Kassian as the operator and that vicarious liability did apply.
The court found that the question was whether or not probable cause existed. It defines probable cause as: “competent evidence which induces a reasonable ground for the inference that the charges may well be founded.”
Despite Angelex’s argument, the indictment stated that the vessel was “operated by Defendant [Kassian],” placing Kassian in the line of criminal liability. Moreover, the indictment stated that the Chief Engineer was “[a]t all times act[ing] within the scope of his employment and agency on behalf of, and for the intended benefit, at least in part, of Defendants [Kassian] and [Angelex].”
The court stated that even if the indictment was not “dispositive of these issues,” the Government’s referral of the criminal charges was reasonable because the Coast Guard had sufficient evidence to prove that Kassian was the vessel’s operator. Further, Kassian was responsible for the management and operation of the vessel. This provided the necessary evidence that Kassian was the operator and is therefore subject to liability under APPS.
The court also stated that the Coast Guard was reasonable in believing that the Chief Engineer of the vessel acted within the scope of his employment when he violated APPS because he was responsible for operating the Engineering department, including ensuring the oily bilge water separator was operating and maintaining the oil record book.
Angelex also argued that there was no evidence to support that the Chief Engineer acted to benefit Angelex or Kassian because “an agent’s acts will not be imputed to the principal in a criminal case unless the agent acts with the intent to benefit the principal.” However, this does not necessarily mean that the act had to be done with the principal’s benefit in mind.
Angelex also indicates that the Chief Engineer tried to conceal his conduct by instructing the crewmembers not to disclose the “magic pipe” to the Coast Guard or the vessel’s Captain. However, this does not entirely forgive Angelex or Kassian of the criminal charges because even though the engineer concealed the pipe, it “does not necessarily lead to the conclusion that the conduct was not meant to benefit them nor does it otherwise absolve them of potential criminal activities.”
Therefore, the court found the Government’s decision to refer the criminal charges to be reasonable under the circumstances.
D. Financial Terms of the Bond
At first, the court was persuaded that the bond amount of $2.5 million was reasonable, and in fact, lower than what the Coast Guard could have made it. Angelex and Kassian were charged with criminal violations of APPS based on three calls to port in the United States while knowingly failing to maintain an accurate oil record book. The statutory maximum fine for such a felony is $500,000. Consequently, Angelex and Kassian, facing up to $1.5 million in penalties each, could have reached a $3 million bond. The Government could have come after the vessel in rem for more than the original bond.
Angelex claimed the $2.5 million bond was unreasonable because the Coast Guard failed to recognize other factors, including how a sentence would be imposed if the charges were grouped, other recent surety cases under APPS, Angelex or Kassian’s ability to post the bond, and that the vessel was chartered to another company.
The court, however, found these arguments not to be unreasonable, but rather that the original bond price was not the most reasonable or found in the most reasonable way. However, Congress has vested the Secretary with broad discretion. Congress also only mandated that the Coast Guard act reasonably. This makes it so that the court should look at the Coast Guard’s decision with deference and only question its decision when the bond amount falls outside the scope of reasonableness.
Here, the court was satisfied with the bond amount and did not seek to “substitute judgment when the Coast Guard has set a bond amount within a reasonable range.”
E. Terms and Conditions of the Security Agreement
The Coast Guard is statutorily allowed to require additional non-financial conditions along with any bond amount it may demand. Based on 33 U.S.C. 1908(e), the court determined that the statute provided the Coast Guard with authority to hold a ship until legal proceedings were completed. The court further distinguished the “authority to impose non-financial conditions from the authority to accept a bond.” The court also established that both Angelex and the Government ignored the fact that 1904(h) “provides a remedy for unreasonable detentions and delays.” Therefore, demands for unreasonable terms is not enough because there was no evidence to prove that the terms of the bond or non-financial conditions were the cause of the delay.
In fact, the record indicates that the vessel’s delay was not a result of the non-financial condition, but a result of the bond, which the court found reasonable. Angelex and Kassion actually both agreed to accept any non-financial conditions if the Coast Guard would lower the bond to $1.5 million.
Subsequently, the court held that the Government was entitled to summary judgment on the issue based on the lack of evidence showing that the non-financial issues were the cause of the delay.
F. The Role of Customs and Border Protection
Angelex argued that CBP’s “’failure to investigate the facts, circumstance, and/or basis for the continued delay to the [vessel] and/or for the Coast Guard’s failure to provide any factual basis for the delay and demands at any time the vessel was in the Port…was unreasonable.” However, Angelex had no factual, evidential, or regulatory authority to back up their claim.
In fact, Angelex’s argument rested on a “faulty premise” that CBP had independent authority to grant the vessel’s clearance if it disagreed with the Coast Guard. CBP, however, has no such authority.
Section 1908 states that CBP “shall refuse or revoke” any such clearance if the Coast Guard deems it necessary. The court interprets the use of “shall” to mean “must.” Once departure is withheld, it can only be reinstated in the event a satisfactory bond or surety was posted.
Based on these findings, the court concluded that CBP had nothing to do with the vessel’s departure clearance.
Based on the above, the court granted the Government’s Renewed Motion for Summary Judgment, denied Angelex’s Cross-Motion for Summary Judgment, and denied as moot the Government’s Motion to Strike.