No Claim? No Standing. – The Importance of Filing a Claim Under LOLA.

A party inexperienced with Limitation of Liability Act (“LOLA”) proceedings may find themselves in deep water by assuming that the procedural rules applicable to ordinary civil cases applies equally to a case brought under LOLA.[1] While there are certainly many similarities, one critical difference with LOLA is the requirement to bring a “claim”; or, more precisely, the distinction between an “answer” and a “claim” under LOLA and Rule F of the Supplemental Rules.[2] The problem arises when a “plaintiff” serves an inexperienced party (i.e., attorney) with a “complaint” under LOLA, who, in turn, files the seemingly appropriate “answer” to that complaint within the allotted time. But unfortunately, under Rule F of the Supplemental Rules, that alone does not preserve the “defendant’s” right to recovery for the underlying incident.[3] Instead, courts have been clear that the injured party must file and articulate a claim for recovery, not merely an answer to the plaintiff’s allegations in its complaint. The consequence of this omission could unfortunately be default judgment.[4]

This procedural issue spawns from Rule F of the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions. Under Rule F, after a plaintiff files a LOLA complaint and brings the associated motions, the court must issue a notice directing all potential claimants to file a claim “on or before a date to be named in the notice.”[5] The claim must specify “the facts upon which the claimant relies in support of the claim, the items thereof, and the dates on which the same accrued.”[6] Notably, however, Rule F separates a claim from an answer to a LOLA complaint.[7] While the claim is necessary to create a right to recovery, an answer is only required if “a claimant desires to contest either the right to exoneration from or the right to limitation of liability[.]”[8] In summary, under Rule F, the claim and answer serve two distinct purposes, and only a claim is a necessary filing.[9]

This may seem simple enough. But many hopeful claimants have nonetheless failed to distinguish these filings and have been left without an avenue to recovery. As a recent example, in Matter of G&J Fisheries, after the plaintiff moved for default on all potential claimants who failed to timely file a claim, a party argued that his answer, file a day prior to the deadline, constituted a “claim” to avoid default.[10] The Massachusetts District Court rejected this argument, stating that it “is unaware of any caselaw construing an answer as a claim under Rule F to save a claimant from default judgment[.]”[11] The court further reasoned that “the plain language of Rule F, which requires a claimant to file a claim rather than an answer, refutes” the hopeful claimant’s argument against default.[12] To that party’s dismay, despite his timely answer denying the plaintiff’s right to limit liability, the court held him in default on his right to recover any amount.[13] Courts in other jurisdictions have come to similar conclusions.[14]

Timely filing a claim is more that just preserving an opportunity for recovery. It is also more broadly about standing in the LOLA proceeding. In a case from the Midwest exemplifying this principle, the Eighth Circuit held that Rule F(5) creates a “statutory standing requirement for challenging limitation actions.”[15] In In re American River Transp. Co., the United States, without first filing a claim, moved to dismiss the LOLA action on the basis that it cannot apply to the relevant incident.[16] The district court granted the United States’ motion.[17] On appeal, the Eighth Circuit set aside the merits of that position, and instead focused on whether the United States could raise the argument all.[18] The court said no, holding that the United States “did not have statutory standing because it failed to file a claim in accordance with Rule F(5).”[19] Thus, not only must a party file a claim “to preserve his right to recover from the limitation fund,”[20] it must also file a claim merely to preserve any opportunity to challenge LOLA itself.[21]

In conclusion, the importance of timely filing a claim in a LOLA action cannot be overstated. It is the singular instrument that preserves a party’s opportunity to exercise any rights under a LOLA action. And critically, a claim is not a mere formality. Courts are clear that alternative filings like an answer will not suffice. As the title implies under Rule F, a party must make an affirmative claim to the limitation fund that the plaintiff creates. Consequently, if you are representing a party in a LOLA action, you should be aware of the necessity of timely filing a claim, and your options if your opponent fails to do so.

If you have questions about avoiding the potential pitfalls of a Limitation of Liability Act complaint or claim, or any other maritime concerns, please contact the experienced admiralty and maritime attorneys at Eckland & Blando LLP.