Monday, January 25, 2010

Cruise Passengers' State Unfair Trade Practices Act Claims Preempted by Admiralty Law

This posting was written by Jody Coultas, Editor of CCH State Unfair Trade Practices Law.

Art purchasers could not maintain Washington Consumer Protection Act, Connecticut Unfair Trade Practices Act, and Florida Deceptive and Unfair Trade Practices Act claims against a seller of art at auctions on cruise ships that were governed by admiralty law, according to the federal district court in Seattle.

The purchasers contended that the art dealer made misrepresentations regarding the value and authenticity of works being sold at auctions conducted on cruise ships in international waters. However, claims brought under state unfair trade practices laws were preempted by admiralty law.

The purchaser argued that admiralty jurisdiction was inapplicable because the conduct at issue occurred on both land and sea. However, the location and connection tests for admiralty jurisdiction were satisfied.

Location Test

The location test was satisfied because the tort giving rise to the claims occurred on navigable waters, the court held. The purchasers claimed that the dealer made misrepresentations about the works being sold at auction and that they relied on these misrepresentations to their detriment. The auctions were held, the misrepresentations were allegedly made, and the purchasers contracted to pay for the artworks on cruise ships in international waters. I was immaterial whether the misrepresentations were repeated on land and where the artwork was delivered.

Connection Test

Applying the connection test, the court held (1) that the activity alleged by the purchasers had a substantial relationship to traditional maritime activities and (2) that the tort at issue had a potentially disruptive impact on maritime commerce. The fact that auctions are commonly part of the “cruise ship experience” satisfied the first part of the test. The conduct alleged had a potentially disruptive impact on maritime commerce since public knowledge of fraudulent conduct on cruise ships could harm the industry.

Because the damages provisions o0f the Washington, Connecticut, and Florida unfair trade practices laws provide for the recovery of attorneys fees and trebled damages, they conflicted with established admiralty law and were therefore preempted.

Conduct Occurring Wholly Outside State

The purchasers could not state a Florida Deceptive and Unfair Trade Practices Act (DUTPA) claim because the statute was preempted by the Commerce Clause, the court ruled. The dealer argued that the DUTPA was preempted by the Commerce Clause because the conduct occurred in international waters. The Commerce Clause precludes the application of a state statute to commerce that takes place wholly outside of a state’s borders, whether or not the commerce has effects within the state.

Applying the DUTPA to conduct that occurred in international waters would result in the regulation of commerce wholly outside Florida’s boundaries and would impose inconsistent regulatory schemes on trading partners.

The decision is In re: Park West Galleries, Inc. Litigation, CCH State Unfair Trade Practices Law ¶31,976.

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