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Agreement Conveying Nominal Ownership Share in a Sailboat is Maritime When the Principal Objective of the Agreement was to Convey Exclusive Use of the Sailboat

March 3, 2017

By Robert E. O'Connor

In Federal Insurance Company v Speedboat Racing Ltd, Senior District Judge Haight considered liability for damages to a sailboat which capsized during a race. The owner claimed payment from its insurer for the damage.  The insurer filed a complaint for declaratory judgment, asserted diversity and admiralty subject matter jurisdiction, and alleged that it had no duty to pay for the damage.  The owner filed an amended third-party complaint against a lessee who, pursuant to an agreement, owned one nominal share in the owner, obtained exclusive use of the sailboat, and was responsible for paying all operating expenses including repair and maintenance costs.  The lessee filed counterclaims against the owner for breach of the agreement and failure to disclose defective equipment on the sailboat.  Both the owner’s amended third-party complaint and the lessee’s counterclaims relied solely upon the court’s supplemental jurisdiction without citing any other basis for subject matter jurisdiction.

After the insurer was terminated from the action by stipulation, the owner filed a motion to dismiss the lessee’s counterclaims for lack of subject matter jurisdiction.  The remaining parties agreed that there was no diversity jurisdiction.

At issue, therefore, was whether the District Court had admiralty jurisdiction.  The District Court considered whether the agreement’s “principal objective” was maritime in nature.  The District Court concluded that while the nominal ownership component of the agreement was non-maritime in nature, the other portion of the agreement – providing the lessee with exclusive use of the sailboat – was essentially a charter and was maritime in nature.  Further, the nominal ownership component of the agreement was “incidental” to the charter portion of the agreement.  Accordingly, the District Court had admiralty jurisdiction.