In Re the Matter of Salvage Arbitration Between LLC Marine Underwriters and Michael Smith

In Re the Matter of Salvage Arbitration between First Marine Underwriters and Michael Smith and The Manchurian Salvage, Inc.

November 12, 2005

Paul Clay, In Pro Per for The Manchurian Salvage Company Jill Coonan, for First Marine Underwriters and Michael Smith

Arbitration Panel: Robert N. Dunn, Chairman, John K. Strickland, and Fred Herder

Background

This is a salvage case brought before this arbitration panel pursuant to the XYZ

Salvage Arbitration Plan. Though other issues may exist, this arbitration panel has been asked to decide two issues: (1) whether a salvage occurred, and, if so (2) what amount of money, if any, is owed to The Manchurian Salvage Company for the salvage of the yacht

HIT ‘N MISS.

The parties have agreed to this arbitration pursuant to the XYZ Salvage

Arbitration Plan and in accordance with that plan, this matter has been presented to the arbitrators solely on their written submissions. Both parties have submitted an initial submission and one in rebuttal. There are no allegations or evidence asserted by either party, that there is in rem jurisdiction over the vessel HIT ‘N MISS.

Statement of the Facts

There are certain allegations made in the written presentations that are not challenged and they will therefore be accepted as fact.

On September 2, 2002 at approximately 1650 hours the 36 foot Sea Ray motor yacht, HIT ‘N MISS, ran aground on a rocky shoal at or near South Bass Island in Lake

Superior. At the time of this grounding the HIT ‘N MISS was owned by and was being piloted by Michael Smith. The HIT ‘N MISS had recently been purchased by Mr. Smith as a new vessel purchase.

At the time of the grounding there were four adults aboard the vessel, Mr. Smith, his wife, Luan Lynn Smith, their guests Chris and Greg Jones and an unknown number of children of unknown ages.

It is undisputed that at the time of the grounding the vessel was traveling at, at least three miles per hour, moving forward. Immediately after the grounding Mr. Smith radioed a “May Day” distress broadcast, which was received by the United States Coast

Guard at Marblehead, Ohio and overheard by one “PC” on his salvage vessel, the M/V

SALVAGE BOAT 1.

Mr. Smith stated in his statement attached to his initial arbitration submission that he was told by the Coast Guard that since no one aboard his boat was in immediate danger they would not send a rescue vessel, rather they would contact a private salvage company to assist the HIT ‘N MISS from the rocks.

Soon after that, the SALVAGE BOAT 1, owned and operated by Manchurian

Salvage, a local salvage company, set its course for the HIT ‘N MISS. The SALVAGE

BOAT 1 piloted by an individual identified as “PC” (thought to be Paul Clay who signed the salvor’s arbitration submissions) arrived at the HIT ‘N MISS at approximately 1700 hours.

Mr. Smith states that there was another boat in the area, owned by Captain

Hildebrand of Heaven Sent Marine Towing Company, that also navigating toward the

HIT ‘N MISS.

2 In his statement, Mr. Smith states that he would have preferred to have Captain

Hildebrand tow his vessel from the strand, but that the SALVAGE BOAT 1 arrived first and the operator of the made the situation seem as though they were in great danger.

PC stated that at the time he heard Mr. Smith’s distress call the seas were at a two-foot chop but that he was able to travel to the site of the grounding at a speed reaching 35 knots.

Neither party has set forth any facts that would convince the arbitrators that the prevailing weather was consideration affecting the salvage event, one way or the other.

On arriving at the scene the operator of the SALVAGE BOAT 1 threw a hawser to the HIT ‘N MISS and instructed those on the grounded vessel to secure the hawser to the bow cleat.

Approximately ten minutes after the SALVAGE BOAT 1 had arrived at the site, it was joined by another Manchurian vessel, SALVAGE BOAT 2, being operated by an individual the petitioner has identified as “JD”. It appears to be the custom of the salvor to refer to each other by their initials rather than their actual names.

At no time before the commencement of the salvage, did any individual from either the SALVAGE BOAT 1 or SALVAGE BOAT 2 board the HIT ‘N MISS to assess the damage caused by the grounding or to perform any evaluation of the location of rocks or other objects in the water under and around the immediate vicinity of the grounded hull of the vessel or the route it would take as it was towed from the rocks.

Neither the terms or conditions of the proposed salvage, the manner in which the

HIT ‘N MISS was to be towed from the shoal, nor the cost of the salvage was discussed

3 between Mr. Smith and PC or JD or any other the representative of Manchurian Salvage on site or otherwise before the salvage was commenced.

After the SALVAGE BOAT 2 arrived, both vessels began to pull the HIT ‘N

MISS from the shoal in a southward direction. It appears significant force was needed to pull the HIT ‘N MISS from or across the rocks.

After approximately one hour, the HIT ‘N MISS had been towed from the shoal and was afloat. At this time PC boarded the HIT ‘N MISS and first met Mr. Smith.

The HIT ‘N MISS was towed to the Lakeshore Marina, although Mr. Smith advised PC that he wanted to be towed to Gulf Shore Marine.

After the vessels arrived at Lakeshore Marina, PC presented Mr. Smith with a C-

Port Salvage Agreement (Exhibit F of the Respondent’s initial submission) setting forth the terms and conditions of the salvage that had just occurred. Among those terms and conditions was the provision that the salvage (now accomplished) would be done as “No

Cure/No Pay at a fixed price of $11,000.00.” Contending that he did not understand the importance of this document, Mr. Smith signed this document, stating PC had told him it was for his protection and to allow his vessel to be released for repair.

The fair market value of the HIT ‘N MISS before the grounding was $185,000.00.

The cost of repairing the vessel was in the amount of $24,601.12.

Though Mr. Smith has alleged that the salvage operation caused increased damage to his vessel’s hull, the arbitrators have been provided no evidence of any damage that was caused by the acts of the salvor.

No contract for the salvage existed between Mr. Smith and Manchurian Salvage before the salvage operation began.

4 Discussion of the Law

The arbitrators find that the facts presented by this case, establish a salvage situation. The arbitrators find there was a reasonably apprehended marine peril sufficient to support a salvage claim, the acts of the salvor were voluntary and not under any legal or contractual duty and the salvage effort was successful in whole or in part. Clifford v.

M/V Islander, 751 F.2d 1, 5 (1 Cir. 1984), 1985 AMC 1855, 1860, E. L. McNabb, Sr. v.

O.S. BOWFIN, 565 F. 22, 1984 AMC 177 (W.D. Wash. 1983), The South Seas, 35 F.2d

52 (E.D.N.Y. 1929), The Sabine, 101 U.S. 384, 25 L. Ed. 982 (1879).

While each of the parties view this situation as one of contract salvage, the arbitrators do not. It is undisputed that this salvage was done voluntarily and without any preexisting agreement or contract having been signed, discussed or agreed to before the salvage event was commenced. The first time the terms, conditions and charges for the salvage were discussed was after the HIT ‘N MISS was again afloat and the salvage was complete. The arbitrators therefore consider this case as one of pure salvage. U.S.

Dominator, Inc., Factory Ship Robert E. Resoff, 768 F.2d 1099186 AMC 1576 (9th Cir.

1985), The Law of Salvage, Martin J. Norris, 1958.

“A voluntary service rendered to imperiled property on navigable waters where compensation is dependent upon success, without prior agreement or arrangement having been made regarding the salvor’s compensation, is called ‘pure salvage.’” 3A Benedict,

7th Ed. (revised) §159.

It is because there was no legal duty to perform this salvage, that is, there was no contractual duty at the inception of the salvage operation to perform the salvage that defines this situation as one of pure salvage. See Smit Americas, Inc., et al. v. The M/V

5 Mantinia, et al., 2003 AMC 1096, 1098, B.V. Bureau Wijsmuller v. United States, 702

F.2d 333, 338-39 (2 Cir. 1983), 1983 AMC 1471, 1477-78. In a contract situation the service is performed under the obligations of the contact. Smit Americas, Inc., et al. v.

The M/V Mantinia, et al., 2003 AMC at 1099.

The C-Port Salvage Agreement proposed by the salvor, by its own language “is an agreement for Salvage Services to be rendered by the Salvor . . . .” (Emphasis ours). It further states, “The owner requests the Salvor to render salvage services . . . .”

(Emphasis ours). The language in the salvage agreement relevant to this matter is prospective in its nature. There is no serious argument made that the salvage agreement could not have been discussed and agreed to before the salvage operation began. It could be argued that the haste of PC in commencing the salvage was caused by his awareness that there was another vessel enroute to the salvage site, which was in competition with him for the salvage. The arbitrators are bothered by the salvor’s haste in light of what appears to be a lack of evidence to support such urgency aside from a business compulsion to secure the salvage opportunity.

The arbitrators are aware of the public policy that is a part of the law of salvage and the valuation of salvage awards to encourage persons to go to sea to aid in the rescue of persons and property in distress. Admiralty does not view the compensation for salvage services on the principle of quantum meruit (as much as one deserved) or pro opera et labore (labor and work). 3A Benidict, 7th Ed., §§234 and 235.

It is recognized in §240 of Benedict on Admiralty that salvage awards should not be made on the basis of fixed percentages. 3A Benedict, 7th Ed. (revised) §240.

6 The amount of a salvage award is properly determined after consideration is given to several relevant factors among which are, the value of the property salvaged, the nature of the peril to which the property is exposed, the value of the salvor’s property, the skill and effective use of the salvor’s skill, the risk or danger to the salvor and their property, the material and labor used by the salvor in rendering the salvage service. The Blackwall,

77 U.S. (10 Wall) 1, 19 L. Ed. 870 (1882), 3A Benedict, 7th Ed. (revised) §237.

The arbitrators have also considered the factors encompassed by the XYZ Salvage

Arbitration Plan. The parties have agreed these factors are relevant in determining an award and they are consistent with the established law of maritime salvage. The XYZ

“Arbitration Guiding Principles” are:

1. salved vessels post-casualty valuation; 2. weather, seas and other marine conditions immediately prior to, during and following the salvage recovery operations which relate to the danger to the property; 3. degree of risk to persons or property during the recovery effort; 4. skill, experience, promptness and expertise of salvor; 5. time, equipment and expenses expended by salvor in rendering the salvage service; and losses, if any incurred by the salvor; 6. the time, equipment and expenses expended by the salvor to mitigate or prevent environmental damage; 7. measure of success, extent of damage mitigated as a result of or caused by the salvage effort; 8. value, readiness and efficiency of salvor’s vessels and equipment; 9. prevailing prices and awards for comparable salvage recovery operations and hourly or per foot salvage rates in that region.

As Judge Mayer recognized: “The problem usually is not to award so little as to discourage salvage aid, nor so much as to encourage unnecessary or exaggerated service.” The No. 92, 46 F. 117 (2nd Cir. 1918), 3A Benedict, 7th Ed. (revised) §241.

As stated in Benedict: “The ideal situation, of course, would be a just and equitable award, neither too high not too low. With a correct understanding of the

7 principles underlying the law of salvage and applying them to all of the circumstances of each case such a result should not be too difficult to accomplish.” 3A Benedict, 7th Ed.

(revised) §241.

The arbitrators have considered the issue of the salvor’s conduct and alleged misconduct during the salvage event. Though there is some basis for believing that the salvor could have used a better or more reasonable method of salving the HIT ‘N MISS, there is no evidence before the arbitration panel from which it could be concluded that the salvor acted with negligence, willful, or wanton misconduct or that the salvor’s actions caused additional damage to the HIT ‘N MISS. Therefore no finding is made on that issue.

In determining an appropriate award the arbitrators have considered all facts material to this matter that have been presented to them. The panel has considered the relatively short time it took to free the HIT ‘N MISS from the strand, the relative skill exhibited by the salvor, the value of the property utilized by Manchurian during the salvage, the value of the property exposed to risk, and the degree of danger involved.

The arbitrators find this was a relatively simple recreational vessel salvage situation, involving a short span of time, with a low risk of danger to personnel and property. The uncontested post-casualty value of the vessel subject to the salvage was in the amount of $160,398.88.

The Award

Therefore, having considered the entirety of the submissions presented by the parties and the applicable law, the arbitration panel awards Manchurian Salvage, Inc. the amount of $7,100.00.

8 No award is given in regard to interest or attorney fees. An award for attorney fees cannot flow from a mere assertion, but must be supported by invoices, affidavits, or an itemization of the fees and costs for which reimbursement is sought. No such documents have been provided to the arbitration panel.

A judgment of proper jurisdiction my enter judgment on this award on the petition of either party.

The award is unanimous.

______Robert N. Dunn Chairman of the Arbitration Panel

November 12, 2005 New York