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To be, or not to be (a vessel), that is the question.

Valerie A. Dondero | March 19, 2013

The United States Supreme Court’s recent decision in Lozman v. City of Riviera Beach, 133 S.Ct. 735 (2013), has limited the scope of admiralty jurisdiction and the application of federal maritime law. The Court held a permanently-moored floating home was not a "vessel" as defined by the Rules of Construction Act, 1 U.S.C. § 3. Only time will tell the true magnitude of the decision, but the gaming, insurance, and finance industries will feel an immediate impact.

Lozman lived aboard his houseboat docked at the City of Riviera Beach Marina for three years before the City filed an in rem admiralty claim and arrested his houseboat for failure to pay dockage fees and failure to comply with the marina’s newly-enacted insurance and vessel registration rules. Both the Southern District of Florida and the United States Court of Appeals for the Eleventh Circuit found the houseboat to be a vessel for purposes of admiralty jurisdiction and held the City’s arrest and ultimate sale of the houseboat was proper.

The Supreme Court granted certiorari last February and oral argument was held in October. The City’s argument focused on the phrase "capable of being used" included in the definition of vessel. The City supported its position that the houseboat was "capable of being used" with evidence showing the houseboat was in fact moved considerable distances (over 60 nautical miles) under tow. In response, Lozman argued a practical view precluded a finding that his houseboat was subject to admiralty jurisdiction because it lacked all the typical characteristics of a vessel such as steering or propulsion capabilities, and it was wholly dependant on land to function as a floating home, permanently affixed to the dock.

The Supreme Court blended the two arguments, applying a practical interpretation of whether the floating home was "capable of being used, as a means of transportation on water." Guided by past Supreme Court rationale in wharfboat and dredge cases, the Court held a structure is not a vessel unless "a reasonable observer, looking to the home’s physical characteristics and activities, would consider it designed to a practical degree for carrying people or things over water." Id. at 741.

In the end, Lozman’s floating home was not a vessel. The Supreme Court’s holding resolved a conflict among the Circuit Courts and did away with the "anything that floats" approach. The holding is also consistent with some state laws which already define floating homes as non-vessels, a point the Court found important to simplify the law.

The decision was an outright victory for the gaming industry. Dockside casinos escaped the grasp of admiralty jurisdiction and avoided exposure to federal maritime laws, including expanded employee rights and benefits allotted to seaman. Similarly, the restricted interpretation relieved the United States Coast Guard from additional vessel regulation compliance inspections and obligations. Marinas will likely aim to revise their rules and contracts to adapt to and protect themselves from Lozman.

There will be an effect on the marine insurance and finance industries as well. For one, a floating structure deemed a non-vessel need not comply with express and implied warranties of seaworthiness. The same structure, however, may no longer utilize the Limitation of Liability Act. Marine lenders will also be more cautious as the secure nature of a preferred ships mortgage does not apply to non-vessels, thereby exposing banks to greater risk; gone are the protections and enforcement of maritime liens available via in rem admiralty proceedings.

The Court acknowledged the standard is not perfect, but hoped its "workable" method would offer guidance in borderline cases. One thing is for certain, the Supreme Court has shifted the line in a very specific direction.

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