BROWNING, Circuit Judge:
In 1993, David Garthwaite, owner of the yacht SUNAIR, entered into two agreements with Southwest Marine relating to the renovation of SUNAIR: (1) a "Do It Yourself Agreement" providing that Garthwaite would rent space at Southwest Marine's boat yard as the site of the renovation to be completed by an outside contractor; and (2) a "Vessel Repair Order" fixing hourly rates for various services to be provided by Southwest, including crane service.
In 1994, Southwest lifted the SUNAIR from the water and placed it in a storage cradle for renovation. The lift occurred without incident. The renovation was completed in 1995 and, following sea trials, Southwest returned SUNAIR to its storage cradle for final repairs. As Southwest was lifting SUNAIR from the water, the winch drum on the crane cracked, and the yacht dropped a few inches. The SUNAIR was unharmed, but the crane suffered serious damage.
Southwest hired American Rigging Company to repair the crane. American Rigging fixed the winch drum and, together with Southwest personnel, installed a new wire rope. Southwest then hired Accredited
Southwest attempted to relaunch SUNAIR one day after the crane was repaired. The wire rope snapped, and SUNAIR dropped several feet to the water. Moments later, the boom of the crane crashed onto SUNAIR's deck, causing more than $900,000 in damage.
Royal Insurance Company, the insurer of SUNAIR, compensated Garthwaite for the damage to the yacht and filed suit as Garthwaite's subrogee against Southwest for breach of contract, breach of warranty, and negligence. Royal subsequently amended its complaint to assert additional claims against Southwest for negligent and intentional misrepresentation.
The district court granted summary judgment for Southwest based on an exculpatory clause in Garthwaite's rental agreement with Southwest, and denied Royal's motion to file an amended complaint to assert claims against Southwest for trespass, conversion, and bailment. The district court also granted judgment on the pleadings in favor of the third-party defendants, American Rigging and Accredited.
Royal appeals (1) summary judgment in favor of defendant Southwest Marine, (2) denial of Royal's motion to file a third amended complaint, and (3) judgment on the pleadings in favor of third-party defendants American Rigging and Accredited.
Both agreements contain exculpatory clauses purporting to release Southwest from all liability.
Royal argues that the exculpatory clauses were procured by "overreaching." Specifically, Royal contends that Garthwaite's attorney objected to exculpatory language during earlier, unsuccessful negotiations with Southwest and, although aware that exculpatory language was not acceptable to Garthwaite, Southwest "deliberate[ly] bypassed" Garthwaite's attorney, inserted the exculpatory language, and "extracted Garthwaite's signature" without counsel.
"Clear precedent holds that, `absent evidence of overreaching, clauses limiting liability in ship repair contracts will be enforced.'" Arcwel Marine, Inc. v. Southwest Marine, Inc., 816 F.2d 468, 471 (9th Cir.1987) (quoting M/V American Queen v. San Diego Marine Constr. Corp., 708 F.2d 1483, 1488 (9th Cir.1983)). However, we have refused to invalidate an exculpatory provision in a ship repair contract where the ship's owner "assented without complaint to the terms of the agreement." M/V American Queen, 708 F.2d at 1488. Even if Garthwaite objected to an exculpatory provision during contract negotiations, he ultimately "assented without complaint." Under these circumstances, Southwest's conduct cannot be characterized as overreaching. See id.; see also Morton v. Zidell Explorations, Inc., 695 F.2d 347, 351 (9th Cir.1982) (no overreaching found where ship owners failed to object to exculpatory provision and pressure to execute agreement resulted from owners' own conduct).
Royal argues that the exculpatory clauses are against public policy and void because they purport to absolve Southwest of all liability. Other circuits may adhere to that rule,
Royal argues that Southwest was using SUNAIR as a test weight for the boom portion of the newly-repaired crane when the accident occurred despite assurances to SUNAIR's captain that the yacht would not be used as a test weight; that this conduct amounted to deliberate misconduct or gross negligence; and that the exculpatory clauses cannot shield Southwest from liability for such conduct.
No court of appeals has held an exculpatory clause in a maritime contract inapplicable to gross negligence. The First and Fifth Circuits have indicated that exculpatory clauses do not cover gross negligence, but concluded that such conduct had not been established in the particular cases. See La Esperanza De P.R., Inc. v. Perez y Cia. De Puerto Rico, Inc., 124 F.3d 10, 19 (1st Cir.1997); Todd Shipyards Corp. v. Turbine Serv., Inc., 674 F.2d 401, 411 (5th Cir.1982). The issue remains unresolved in the Ninth Circuit. See M/V American
The first inquiry is whether Royal raised a triable issue as to Southwest's gross negligence. See id. Because the court's jurisdiction is grounded in admiralty, the court "look[s] to the common law in considering maritime torts." Su v. M/V SOUTHERN ASTER, 978 F.2d 462, 472 (9th Cir.1992) (looking to Washington law for elements of fraud in admiralty case originating in that state). California law defines "gross negligence" as "the want of even scant care or an extreme departure from the ordinary standard of conduct." Kearl v. Board of Med. Quality Assurance, 189 Cal.App.3d 1040, 236 Cal.Rptr. 526, 534 (Cal.Ct.App.1986) (internal quotations and citations omitted). Black's Law Dictionary defines "gross negligence" as "[t]he intentional failure to perform a manifest duty in reckless disregard of the consequences as affecting the life or property of another; such a gross want of care and regard for the rights of others as to justify the presumption of willfulness and wantonness." Black's Law Dictionary 1185 (4th ed.1968); accord La Esperanza, 124 F.3d at 19 (defining gross negligence as "harm wilfully inflicted or caused by gross or wanton negligence"). Case law from this circuit indicates "gross negligence" is simply a "point on a continuum of probability," Vision Air Flight Serv. Inc. v. M/V Nat'l Pride, 155 F.3d 1165, 1176 n. 13 (9th Cir.1998), and its presence "depends on the particular circumstance of each case." Todd Shipyards, 674 F.2d at 411.
The particular circumstances of this case present a colorable claim of gross negligence. Viewed in the light most favorable to Royal,
Because Royal raised a triable issue of fact with as to whether Southwest was grossly negligent, we must determine whether the limitation provisions in these contracts exclude liability for such negligence. Some policy considerations weigh against excluding gross negligence from an exculpatory clause.
We are persuaded, however, that a party to a maritime contract should not be permitted to shield itself contractually from liability for gross negligence. This position is endorsed by the First and Fifth circuits, see La Esperanza, 124 F.3d at 19; Todd Shipyards, 674 F.2d at 411, supported by sound public policy, see Rest. (2d) Contracts § 195(1) & cmt. a (1979) ("A term exempting a party from tort liability for harm caused intentionally or recklessly is unenforceable on grounds of public policy .... The law of torts imposes standards of conduct for the protection of others against unreasonable risk of harm. One cannot exempt himself from such liability for harm that is caused either intentionally or recklessly."), and consistent with well-settled principles of contract law, see 6A Corbin on Contracts § 1472 (1962 ed. & Supp.1999) ("It is generally held that those who are not engaged in public service may properly bargain against liability for harm caused by their ordinary negligence; but such an exemption is always invalid if it applies to harm wilfully inflicted or caused by gross or wanton negligence."); 8 Williston on Contracts § 19:23 (4th ed. 1998) ("An attempted exemption from liability for ... a future willful or grossly negligent act is generally held void ...."); Prosser & Keeton, Torts § 68, at 484 (5th ed.1984) ("such agreements generally are not construed to cover the more extreme forms of negligence, described as willful, wanton, reckless or gross"). A rule reflecting these commonly-understood contract principles preserves the "simplicity and practicality" of admiralty law. Kermarec, 358 U.S. at 631-32, 79 S.Ct. 406.
We conclude that the exculpatory clauses do not shield Southwest from liability for gross negligence and, a fortiori, do not shield Southwest from liability for intentional misconduct. Royal may pursue its claims against Southwest for gross negligence and intentional misrepresentation.
After the district court granted summary judgment in favor of Southwest, Royal sought leave to file a third amended complaint containing additional claims against Southwest for trespass, conversion, and bailment, and negligence claims against American Rigging and Accredited. The district court denied Royal's motion. American Rigging and Accredited then moved for judgment on the pleadings, on the ground that Royal's complaint failed to state a claim against them. The district court granted the motion, dismissing American Rigging and Accredited with prejudice. Royal argues the district court (1) abused its discretion in denying Royal's motion to file a third amended complaint, and (2) erred by granting judgment on the pleadings.
"A district court's denial of leave to amend is reviewed for an abuse of discretion, keeping in mind the strong policy in favor of allowing amendment, and considering four factors: bad faith, undue delay, prejudice to the opposing party, and the futility of amendment." Kaplan v. Rose, 49 F.3d 1363, 1370 (9th Cir.1994).
Royal's proposed third amended complaint did nothing more than reassert an old theory of liability based on previously-known facts. Royal had knowledge of the relevant facts from the inception of the lawsuit. Its second amended complaint, filed on October 29, 1996, contained allegations regarding Southwest's use of SUNAIR as a test weight. Thus, the "newly-discovered" evidence-a statement by Southwest that the use of SUNAIR as a test weight fell outside the scope of the contract-was actually known to Royal no later than October 29, 1996. Considering that Royal had twice before amended its complaint and moved to amend a third time only after the district court dismissed its claims on summary judgment, the district court did not abuse its discretion by denying Royal's motion to amend. See Stein v. United Artists Corp., 691 F.2d 885, 898 (9th Cir.1982) (no abuse of discretion in denying motion to file amended complaint where complaint was submitted after district court granted defendants' motions to dismiss, and plaintiff "provided no satisfactory explanation for [its] failure to fully develop his contentions originally, and the amended complaint was brought only to assert new theories, if anything, and was not premised upon new facts.").
The district court dismissed third-party defendants American Rigging and Accredited because (1) neither third-party complaint contained specific language demanding judgment in favor of Royal as required by Rule 14(c), and (2) Royal's complaint alleged claims solely against Southwest, and "any liability as to American [Rigging] and [Accredited] was eliminated when summary judgment was granted in Southwest's favor."
Rule 14(c) governs third-party practice in admiralty and maritime cases. If the third-party plaintiff in admiralty "demand[s] judgment against the third-party defendant in favor of the plaintiff," the action "shall proceed as if the plaintiff had commenced it against the third-party defendant as well as the third-party plaintiff." Fed.R.Civ.P. 14(c). However, "[i]t is unclear what language is necessary for the third-party plaintiff to `demand' judgment against the third party defendant in favor of the plaintiff." 29 Moore's Federal Practice § 704.06, at 704-74 (3d ed.1998). Some courts demand strict compliance with the "demand" language of the rule, see, e.g., Northern Contracting Co. v. C.J. Langenfelder & Son, Inc., 439 F.Supp. 621, 623 n. 1 (E.D.Pa.1977); others take a more lenient approach, see, e.g., Riverway Co. v. Trumbull River Servs., Inc., 674 F.2d 1146, 1154 (7th Cir.1982).
In Riverway Co., the plaintiff alleged that its barge sunk as a result of the defendant's negligence. The defendant filed a third party complaint disclaiming its own fault and alleging that the sinking of the barge "occurred as a result of the primary and active fault, negligence and carelessness of [the third party defendant]," and praying that "according to ... Rules 4 and 14(c) ... Third Party Defendant ... appear and answer this Third Party Complaint and answer the Complaint of the Plaintiff." Id. at 1148, 1154. The Seventh Circuit held these allegations sufficient to satisfy Rule 14(c)'s demand language:
Id. at 1154-55.
Like the Seventh Circuit, we have not interpreted Rule 14(c)'s demand language rigidly. In Campbell Industries, Inc. v. Offshore Logistics International, 816 F.2d 1401 (9th Cir.1987), we held that Rule 14(c) was satisfied by a third-party complaint praying that the third party defendant "make its defenses and answer directly to the claims of the Plaintiff ...." Id. at 1406. This holding properly reflects "the liberal third party practice" embodied in Rule 14(c). General Marine Constr. Corp. v. United States, 738 F.Supp. 586, 587 (D.Mass.1990) ("Fed.R.Civ.P. 14(c) ... reflects one of the prominent aspects of the admiralty procedure, the liberal third party practice." (alterations omitted, quoting 6 Wright, Miller & Kane, Federal Practice and Procedure § 1465 (1990))).
Neither of the third-party complaints in this case contained specific language "demand[ing] judgment against the third-party defendant in favor of [Royal]." Fed.R.Civ.P. 14(c). However, both specifically and repeatedly referred to Rule 14(c). Both were captioned "Third Party Complaint [F.R.Civ.P. 14(c)]" (brackets in originals), and both prayed that "the Third Party Defendant answer and respond to the complaint of Royal Insurance Company in accordance with Rule 14(c)." (Emphasis added.) Both explained how and why the third-party was directly liable to Royal. Southwest's complaint alleged that American Rigging "sold the wire rope to [Southwest] and reeved said wire onto the crane upon which it failed allegedly causing damage to [Royal] as set forth in [Royal's] complaint," and that the damage to SUNAIR "w[as] caused by the faulty workmanship and negligence of the third party defendant, American Rigging." Similarly, American Rigging's complaint alleged that Accredited "breached basic industry standards of care while conducting the aforesaid certification tests, and that such conduct acted as an immediate and proximate cause of the damage alleged in [Royal's] complaint...." American Rigging and Accredited filed answers to Royal's complaint "[i]n accordance with" and "pursuant to" Rule 14(c), respectively.
Rule 14(c) "is to be liberally construed." 8 Benedict on Admiralty § 2.01[E] (1998). The "unmistakable meaning" of the language in the third-party complaints was to designate American Rigging and Accredited as defendants to Royal's complaint. Riverway Co., 674 F.2d at 1154. This was sufficient to satisfy Rule 14(c)'s demand language.
The district court entered judgment on the pleadings in favor of American Rigging and Accredited because Royal's complaint alleged claims "solely against Southwest." Royal contends it was not required to make specific allegations against the third-party defendants. We agree.
Rule 14(c) provides that the third-party action "shall proceed as if the plaintiff had commenced it against the third-party defendant as well as the third-party plaintiff." Fed.R.Civ.P. 14(c). This provision creates a "direct relationship" between the plaintiff and the third-party defendant:
6 Wright & Miller, Federal Practice and Procedure, § 1465, at 483-85 (1990) (emphasis added).
The direct relationship created by Rule 14(c) between Royal and the third-party defendants required Royal to assert its claims directly against those parties, thereby avoiding "a separate suit for contribution or repetitious pleadings and testimony on the part of the plaintiff and the third-party plaintiff...." Riverway Co., 674 F.2d at 1154 (quoting Ohio River Co. v. Continental Grain Co., 352 F.Supp. 505, 512 (N.D.Ill.1972)).
In Riverway Co., a third-party defendant was found directly liable to the plaintiff under Rule 14(c) where the third-party complaint alleged that the injury "occurred as a result of the primary and active fault, negligence and carelessness of [the third-party defendant]...." 674 F.2d at 1148. In this case, the third-party complaints explained in detail how the third-party defendants' lack of care damaged SUNAIR: American Rigging allegedly "sold the wire rope to [Southwest] and reeved said wire onto the crane upon which it failed allegedly causing damage to [Royal] as set forth in [Royal's] complaint," and thus the damage to SUNAIR "w[as] caused by the faulty workmanship and negligence of the third party defendant, American Rigging." Similarly, Accredited allegedly "breached basic industry standards of care while conducting the aforesaid certification tests, and that such conduct acted as an immediate and proximate cause of the damage alleged in [Royal's] complaint...."
The third-party complaints directed American Rigging and Accredited to answer Royal's complaint, which they did. Each filed an answer to Royal's complaint, disclaiming responsibility for SUNAIR's damage and asserting numerous affirmative defenses to Royal's claims. Neither exhibited any difficulty understanding the nature of the allegations against them. The parties themselves treated this action as if Royal had commenced it against Southwest, American Rigging, and Accredited as joint defendants.
Nonetheless, American Rigging and Accredited claim that Royal was required to amend its complaint to assert specific claims against them. If this contention were correct, "either a separate suit for contribution or repetitious pleadings and testimony on the part of the plaintiff and the third-party plaintiff would be necessary in the original trial. Such cannot be the meaning of Rule 14(c). The rule provides instead that the third-party plaintiff may demand judgment against the third party defendant in favor of the plaintiff and shall be construed as meaning precisely that. [Royal] is thus entitled to recover its damages from both [Southwest] and [American Rigging and Accredited]." Ohio River Co. v. Continental Grain Co., 352 F.Supp. 505, 512-13 (N.D.Ill.1972).
Judgment on the pleadings was improper.
The district court's order granting summary judgment in favor of Southwest and
The repair order provided: