Punitive Damages Awarded for Wrongful Seizure

On October 17, 2023, the United States Fifth Circuit Court of Appeals, in the case Kenai Ironclad Corp. v. CP Marine Services, LLC and Ten Mile Exchange, LLC, upheld a district court ruling against a Louisiana shipyard for wrongful seizure of a vessel. The opinion is significant because the court of appeal found the facts supported a punitive damage award.

A.  Background

Kenai Ironclad Corporation ("Kenai") owned an offshore supply vessel, the M/V IRON DON, that it wanted to convert to a fishing tender. In December of 2018, Kenai orally contracted with CP Marine Services, LLC ("CPM") to modify the vessel. In early 2019, Kenai expressed concerns about the quality of CPM's work. Kenai asked for a written guarantee of the work. CPM refused and demanded immediate payment of outstanding invoices. Kenai paid all CPM invoices.

Kenai decided to end the working relationship with CPM. So, CPM demanded that Kenai immediately remove its crew and equipment from the vessel and shipyard. CPM had deputy sheriffs evict Kenai's crew from the vessel. It further threatened to return the vessel from drydock to the water and charge a $5,000 per day storage fee. In early March 2019, Kenai hired a vessel, the M/V SUPER T, to remove IRON DON from CPM's shipyard. As it was doing so, a vessel operated by a co-owner of CPM and Ten Mile Exchange ("TME") intentionally rammed the M/V SUPER T, pinned it and the IRON DON against the bank, verbally threatened Kenai, and physically prevented Kenai from retrieving its vessel. Kenai recovered its vessel on March 11, 2019.

Kenai sued CPM and TME for breach of contract, wrongful vessel seizure, conversion, and tortious interference with contractual relations. Following a five-day bench trial, the district court held that CPM did not breach its contract with Kenai. However, the district court found that Defendants acted in bad faith and detained the IRON DON pursuant to an invalid maritime lien. The district court awarded punitive damages, plus attorney's fees, expenses, court costs and pre-judgment interest. Defendants appealed.

B.  Discussion 

One of the issues on appeal was whether the district court correctly determined that Defendants wrongfully arrested/detained Kenai's vessel. To recover for wrongful arrest of a vessel, there must be (1) no bona fide claim of maritime lien on the vessel and (2) a showing of bad faith, malice, or gross negligence of the offending party. Defendants argued that Kenai's final payment had not cleared, the vessel was not arrested, and there was no bad faith. The Fifth Circuit noted that CPM did not have a valid maritime lien because all its invoices had been paid. It found there was sufficient evidence that Defendant intentionally blocked the canal in bad faith for five days after the ramming incident. The evidence also supported the district court's punitive damage award. 

C.  Conclusion

The Court of Appeal found Kenai's vessel was wrongfully seized in bad faith and that there were sufficient facts to support a punitive damage award. It affirmed the district court's ruling in this regard. However, the Fifth Circuit vacated the district court's damage award and sent the case back to the district court for clarification of its award.

D.  Why Is This Important?

• General maritime law has long recognized the availability of punitive damages in the appropriate case.

• Detaining a vessel without a valid maritime lien can create exposure for wrongful seizure.

• A plaintiff may recover punitive damages and attorney's fees if its vessel is wrongfully detained.