Manhattan By Sail, Inc. v. Tagle

Background

Manhattan By Sail, Inc. and Shearwater Holdings, Ltd. were the owners, operators, and agents of the Shearwater Classic Schooner. The opinion states that an employee’s negligence injured Charis Tagle, a customer aboard the vessel on April 30, 2011. The owners had previously obtained an order allowing them to seek limitation of liability under the Limitation of Liability Act. The remaining dispute was the value of the vessel and its pending freight, which would determine the owners’ maximum liability.

The Shearwater was an 82-foot historic sailing vessel built in 1929. The court found that it had no active market and no appropriate comparator in terms of profits. The owners had purchased the vessel and its previous owner’s business for $525,000 in 2001. After the vessel was severely damaged in an accident involving a lift and a septic tank, the owners substantially rebuilt it. The physical repair and improvement costs were between $500,000 and $600,000, while total reconstruction, legal, and other costs were approximately $700,000. The court also considered the vessel’s revenue and income, its approximately $75,000 in annual maintenance expenses, its $800,000 agreed insurance value, and the estimated $1 million to $1.5 million cost of creating a replica.

Expert Evidence

The owners’ expert, Rik van Hemmen, valued the vessel at $300,000. His opinion relied on a prior appraisal and on a comparable vessel called the Imagine. The court found his analysis unreliable because it relied heavily on a single sale, did not adequately explain the comparison, used an inaccurate revenue estimate, and did not account for the vessel’s actual tax-return figures.

Tagle’s expert, Roy Scott, valued the vessel at $750,000 to $850,000. He began with the $525,000 purchase price, added $700,000 for repairs, and subtracted depreciation. The court found this analysis unreliable because the $700,000 figure included costs beyond the physical repairs and because Scott could not adequately explain the method he used to determine how much the repairs increased the vessel’s value.

Before the hearing, each side moved to exclude the other side’s expert under Rule 702 of the Federal Rules of Evidence. Because the court was the factfinder, it denied both motions as moot rather than excluding the testimony before considering its reliability. Tagle also argued that van Hemmen’s testimony should be excluded as a disclosure sanction under Rule 37(c)(1), because the owners had not disclosed his valuation methods before the hearing. The court declined to exclude that testimony, finding the disclosure failure harmless.

Valuation

The court explained that, when a limitation petition has been granted, an owner’s liability for covered claims cannot exceed the value of the vessel and its pending freight. The vessel’s value is measured at the end of the voyage during which the incident occurred. Because there were no adequate contemporaneous sales, the court used the totality of the circumstances rather than mechanically applying one valuation formula.

The comparable-sales method was unreliable because the market was illiquid and the Imagine was not sufficiently comparable. The income method was also unreliable because the record did not establish how annual profits should be converted into vessel value, and the vessel’s earlier and later businesses operated in different markets. The court instead used a modified cost-and-depreciation analysis, beginning with the vessel’s 2006 rebuilding, and compared that result with the insurance value and other evidence.

The court found that the Shearwater was worth $450,000 on April 30, 2011. It found that the pending freight—earnings from that voyage—was approximately $2,400, based on 48 passengers paying $45 each. The total value of the vessel and pending freight was therefore $452,400.

Ruling and Next Steps

Judge Valerie Caproni ruled that the owners were entitled to limit their liability to Tagle to $452,400. The court directed the parties to appear for a status conference on February 28, 2020, and to submit a joint letter addressing proposed next steps, including possible mediation or a settlement conference.