Sander v. Richardson

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DMC/SandT/03/48
Sander v. Alexander Richardson Investments
United States Court of Appeals for the Eighth Circuit: 334 F.3d 712: Judges Hansen, Riley, and Chief Judge Beam: July 1, 2003
Admiralty: Exculpatory Clauses: Negligence: Yacht Club: Slip Agreement: Whether Exculpatory Provision In Slip Rental Agreement Enforceable
Summary
The United States Court of Appeals for the Eighth Circuit, reversing a decision of the United States District Court for the Eastern District of Missouri, held that the defendant yacht club was not liable to various plaintiff boat owners in negligence for a fire which had destroyed the plaintiffs’ boats. The decision was founded on an exculpatory clause in the slip rental agreement which purported to exonerate the yacht club from liability for "any and all" damage to plaintiffs’ property.

This case note was contributed by Marissa Jacobs, an associate with the firm of Healy & Baillie LLP, New York. Healy & Baillie are the International Contributors to the website for the USA

Facts
The plaintiffs’ boats were destroyed in a fire at the defendant yacht club where they were kept pursuant to marina slip rental agreements. The fire was caused by a fuel pump which had been incorrectly installed by a yacht club maintenance worker hired by the boat owner on the recommendation of the yacht club. The claim against the yacht club alleged that the club had negligently recommended the maintenance worker. The yacht club countered the negligence argument with the exculpatory clause found on the back of the boat owners’ slip agreements, which provided that the club would be released from "any and all" liability resulting from a list of causes, including fire.

The court of first instance, the District Court for the Eastern District of Missouri, concluded that the exculpatory clause was invalid since it purported to absolve the club of all liability, including liability for its own negligence, and that, in any event, the clause lacked clarity and was the result of unequal bargaining power.

Judgment
On appeal, the Court of Appeals for the Eighth Circuit reversed the District Court’s decision .

The Court first considered the clarity of the exculpatory clause. Noting that the clause did not specifically exclude liability for the yacht club’s negligence, the Court nevertheless held that by looking at the contract as a whole and giving the terms their normal and everyday meanings, the clause clearly extended to that kind of liability.

The next question was whether exculpatory clauses violate public policy. The Eighth Circuit noted that the circuit courts generally agree that exculpatory clauses are enforceable under admiralty law; the disagreement arises when a party seeks to exclude liability for its own negligence. The Supreme Court, in Bisso v. Inland Waterways Corp., 349 U.S. 85 (1955), refused to enforce an exculpatory clause in a towage contract on the basis that such a rule was necessary to discourage negligence and prevent overreaching by parties with strong bargaining power. The First and Eleventh Circuits have extended this rule beyond towage contracts, and in those circuits exculpatory clauses are only enforceable in admiralty matters if (a) they are clear and unequivocal, (b) they do not absolve a party from all liability for its own negligence, (c) the liability risk provides a deterrent to negligence, and (d) the parties are of equal bargaining power. The Fifth and Ninth Circuits, on the other hand, have distinguished Bisso, holding that that decision applies only in situations which are analogous to towing agreements, such as bailor/bailee relationships, employer/employee relationships and other similar circumstances.

The Eighth Circuit, following the reasoning of the Ninth Circuit, concluded that the public policy of freedom of contract should prevail, so long as the contract does not have elements of unequal bargaining power. In this case, the Court held, equal bargaining power existed since the slip owners were able to choose other marinas and evidence existed that other boat owners had negotiated the particulars of their slip agreements. Accordingly, the first instance judgment was reversed. Importantly, the Court did not resolve the question of whether exculpatory clauses are valid in all maritime contracts, but expressly limited its holding to marina slip agreements.

Comment
There is, as explained above, a split among appellate courts in the United States on the issue of whether, under admiralty law, an exculpatory clause that fully absolves a party from liability for its own negligence is enforceable. The Fifth and Ninth Circuits enforce such exculpatory clauses in most circumstances (excluding towage agreements). The First and Eleventh Circuits do not. In reversing the lower court, the Eighth Circuit (which encompasses Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota and South Dakota) moved in the direction of the Fifth and Ninth Circuits by holding that, at least in marina slip rental agreements, an exculpatory provision is enforceable so long as the parties’ intent to so agree is clear.

These Case Notes have been prepared with care, but neither the Editor nor the International and other Contributors can guarantee that they are free from error, nor that they contain every pertinent point. Reliance should not therefore be placed upon them without independent verification. The Editor and the International and other Contributors disclaim all liability for any loss of whatsoever nature and howsoever arising as a result of others acting or refraining from acting in reliance on the contents of this website and the information to which it gives access. The Editor claims copyright in the content of the website.