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IN RE CHESAPEAKE SHIPPING

October 6, 1992

In the Matter of the Complaint of CHESAPEAKE SHIPPING, INC. and GLENEAGLE SHIP MANAGEMENT CO., Inc. For exoneration from or Limitation of Liability. DEBRA J. McHUGH, individually, and on behalf of her minor children, STEPHANIE J. McHUGH, KIMBERLY N. McHUGH AND RYAN D. McHUGH, and as Administratrix of the Estate of STEVEN McHUGH, Plaintiffs, -against- GLENEAGLE SHIP MANAGEMENT CO., INC. Defendant.

HAIGHT, JR.


The opinion of the court was delivered by: CHARLES S. HAIGHT, JR.

HAIGHT, District Judge:

 This Court's Memorandum Opinion and Order dated November 7, 1991, 778 F. Supp. 153, familiarity with which is assumed, granted the motions of certain claimants to dismiss the complaint of Gleneagle Ship Management Co., Inc. ("Gleneagle") for exoneration from or limitation of liability and to strike Gleneagle's affirmative defense in a related case asserting the limitation of liability statute. The litigation arises out of a casualty suffered by the M/V SURF CITY, resulting in death and injury to certain of the ship's officers and crew.

 That Opinion also granted Gleneagle the right to file an amended pleading setting forth further allegations in support of its professed right to claim the benefits of the limitations of liability statute.

 Gleneagle has filed and served an amended complaint in the lead case, 90 Civ. 1772. The amended complaint alleges at P 5:

 "At all material times, plaintiff Gleneagle managed and operated the M/V SURF CITY, employed her crew, handled and settled insurance, general and particular average, salvage and other claims in connection with said vessel, and provided and procured necessary services for said vessel, including maintenance, surveys, repairs, victuals and supplies, pursuant to the terms of a management agreement and a course of dealing between Chesapeake and Gleneagle. Gleneagle manned, victualed and navigated the M/V SURF CITY and is therefore an owner within the meaning of the Limitation of Liability Act, 46 U.S.C. ยงยง 183-189.

 The record developed during discovery reveals the following. On June 1, 1987 Chesapeake Shipping, Inc. *fn1" ("Chesapeake") as "Owners" and Gleneagle as "Managers" entered into a Management Agreement covering a number of vessels, including the SURF CITY. While P 4 of the Management Agreement required Gleneagle to furnish a wide array of vessel management services "if requested by the Owners," in point of fact Chesapeake requested very little of Gleneagle during the early days of the contractual relationship. The Management Agreement was accompanied by a "side letter" in which Chesapeake requested Gleneagle to provide the services of United States citizens as masters for each of the eleven vessels covered by the agreement. For that limited service Gleneagle received a basic monthly fee of $ 1,310 per ship. The side letter recited:

 If and when requested, Gleneagle will provide any other services, within the scope to [sic] the Management Agreement as may be required by Chesapeake Shipping, Inc. The management fee for any such additional services will be negotiated at such time as they may be requested.

 Between June 1, 1987 and April 25, 1988, this was the only service Gleneagle performed under the Management Agreement.

 On April 25, 1988 the parties executed "Schedule No. One" to the Management Agreement, pursuant to which Gleneagle agreed to procure and provide United States licenced radio operators for the vessels covered by the agreement. For that additional service, Gleneagle's monthly fee was increased by $ 500 per vessel.

 A far more significant expansion of Gleneagle's responsibilities took place when the parties executed Addendum No. 1 to the Management Agreement, signed by Chesapeake on March 27, 1989 and by Gleneagle on April 4, 1989. With respect to a number of vessels in the Chesapeake fleet, including the SURF CITY, Gleneagle took over the full management and operation of the vessels, including selecting, engaging and providing full complements of officers and crews, and performing all of the duties referred to in the Management Agreement which, prior to execution of the Addendum, Chesapeake had not requested of Gleneagle. This new arrangement came into effect with respect to the SURF CITY on April 15, 1989, the "Handover Date" specified in the addendum. The addendum increased Gleneagle's monthly management fee for the SURF CITY to $ 11,750. Pursuant to its increased obligations under the Management Agreement, Gleneagle entered into a collective bargaining agreement with the International Organization of Masters, Mates & Pilots. Further with respect to manning the vessels, P 10 of Addendum No. 1 provided in part:

 The Manager shall be deemed for all purposes to be the employer of the officers and crew of the Vessels. To the extent permitted by applicable law, Owner shall have no liability for personal injury claims relating to the Vessels. The Manager shall process all personal injury claims relating to the Vessels.

 Reflecting this revised and expanded Management Agreement, Gleneagle maintained a staff of employees at Houston, Texas which included a port captain, port engineers, ships' purchasing agents, personnel agents, accounting and payroll employees, a crew P & I (protection and indemnity insurance) claims agent, and other management staff, who devoted their efforts to the Chesapeake fleet. The responsibilities falling upon Gleneagle included manning the vessels; victualing the vessels; providing for navigation, which involved procuring and providing deck, engine and cabin stores; maintenance and repairs for hull and machinery; providing spare parts, maintenance and repairs for communication and navigation equipment; ...


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