The U.S. District Court of Puerto Rico held Inter-Island Ferry was within its rights in filing suit against Puerto Rico Ports Authority (PRPA) and the Maritime Transport Authority (MTA) for charter fees despite several motions to dismiss the complaint.
Inter-Island Ferry Systems Corp. operated the M.V. Isla Grande, a passenger and cargo vessel, between the main island of Puerto Rico and two island municipalities off its East Coast, Vieques and Culebra.
The Puerto Rico Ports Authority (PRPA), a public corporation of the Commonwealth of Puerto Rico, chartered Isla Grande in 2004 and 2005.
An agency called the Maritime Transport Authority (MTA), also a public corporation of the commonwealth, was PRPA’s “successor…with regard to the transportation services” between Puerto Rico and the two islands, according to Inter-Island, which filed a suit against both MTA and PRPA alleging the two entities owed it a combined $72,400 for charter services.
In response, PRPA said the charter fees were paid prior to the complaint, and MTA said it had “complied with its legal obligations under the applicable charter agreements, including payment of fees.”
PRPA and MTA each moved to dismiss the complaint for failure to state a claim and lack of subject-matter jurisdiction. Inter-Island opposed those motions, and ultimately, the court refused to dismiss the case. (Inter-Island Ferry Systems Corp. v. Puerto Rico Ports Authority, et al. U.S. District Court, District Court of Puerto Rico. No.15-3057. March 16).
According to Inter-Island, PRPA “transferred all maritime operations” to the MTA and subsequently refused to pay the amounts owed. Inter-Island also said that PRPA transferred or endorsed the $72,400 due on the agreement to the MTA without its approval.
The ferry company alleged MTA assumed PRPA’s obligation, but refused payment or alternatively, alleged MTA was liable because it was the successor to PRPA, and had not only used Inter-Island’s vessels, but also Inter-Island’s services for repair and maintenance of MTA-owned vessels.
PRPA and MTA argued Inter-Island was not the “real party in interest” because the corporation had been “cancelled” in October 2014.
But the court found under Puerto Rico law, “All corporations, whether they expire by their own limitation or are otherwise dissolved, shall continue for a three…year term from such expiration or dissolution…for the purpose of prosecuting and defending suits,” thus giving Inter-Island the capacity to sue or be sued until October 2017.
PRPA and MTA also claimed the 11th Amendment to the U.S. Constitution, which sates, “The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State,” shielded them from any monetary liability.
But the court said on the question of sovereign immunity and subject matter jurisdiction—the authority of a court to hear a particular sort of case—this dispute “was brought under the court’s admiralty jurisdiction due to an alleged breach of the charter for the M.V. Isla Grande, a vessel hired for the maritime transportation of people and cargo,” and thus is “enforceable in a court of admiralty.”
Earlier court decisions note the U.S. Supreme Court has declined to state definitively whether the 11th Amendment is a doctrine of subject matter jurisdiction, and that jurisdictional issues must be resolved before deciding whether to dismiss a case for lack of subject matter jurisdiction.
Here, the court said, “To determine whether an entity is an ‘arm’ of the state, courts employ a two-step analysis.”
If a state clearly structures the entity to share its sovereignty, then the entity is an arm of the state and the analysis is at an end, it explained.
The 1st U.S. Circuit Court of Appeals (which has appellate jurisdiction over the district courts in Puerto Rico) in decisions dating from 2000 and 2006, found that “Puerto Rico’s sovereign immunity parallels the states’ 11th Amendment immunity,” and that such immunity is enjoyed by entities that are determined to be arms of the commonwealth.
But the court hearing this dispute was also able to point to a 1st Circuit decision that found the PRPA was not entitled to assert sovereign immunity in a discrimination case and said “PRPA has provided no reasoned argument as to why the result should be any different under the circumstances of this case,” adding that “the same result applies to the MTA.”
As to whether it had subject matter jurisdiction, the District Court for Puerto Rico cited a 1st Circuit decision which said, “Contracts to hire a vessel are wholly maritime” and a Supreme Court opinion from 1986 (East River Steamship Corp. v. Transamerica Delaval, Inc.) which held “With admiralty jurisdiction comes the application of substantive admiralty law. Absent a relevant statute, the general maritime law, as developed by the judiciary, applies.”
The court hearing this dispute said “the complaint plausibly alleges that the PRPA hired the M.V. Isla Grande, that the vessel was used over the course of two years, and that the PRPA is liable for unpaid dues on the agreement to hire that vessel.
“The complaint also plausibly alleges the MTA’s liability, stating that the MTA is liable as the PRPA’s ‘successor’ and that the MTA ‘assume[d] the obligation’ at issue,” the court added. “Courts sitting in admiralty have recognized the availability of successor liability, as well as the assignability of a maritime contract.”
And an argument that a provision in the Puerto Rico Government Accounting Act meant the complaint should be dismissed because it failed to allege the existence of a registered written contract with the PRPA was “insufficient to warrant dismissal of the complaint at this early stage,” the court said, because it was still unclear whether the agreement was written or oral.
Furthermore, the court said the Supreme Court expressly held in the 1994 decision Am. Dredging Co. v. Miller “that a State may not require that a maritime contract be in writing where admiralty law regards oral contracts as valid.”
The motions by PRPA and MTA were dismissed, and the court encouraged the parties “to re-explore settling the claim for the alleged $72,400, plus legal interest.”
Admiralty law regards oral contracts valid
