In Lozman v. Riviera Beach, 568 U. S. ____ (2013), The Supreme Court decided that many structures which float and move on the water – floating homes, for instance – will no longer be considered “vessels” for purposes of federal law. This decision has sent shockwaves through the maritime community as the implications are enormous, for business and individuals alike. In a 7-2 decision, the Supreme Court has thrown out the century old definition and test for vessels and ordered that the lower courts decide on a case-by-case basis whether structures, like floating homes and casinos, are vessels or not. For the majority of these situations, nothing will change; if a structure looks and operates like a boat, it will still be a “vessel.” But for borderline cases, whether a floating structure is a “vessel” under Lozman will become a crucial issue. For now it’s clear the Court has narrowed the legal meaning of the word “vessel” considerably, and that owners of floating structures should consult their attorneys to determine whether the new rule will affect their interests.

The case at hand concerns a Florida resident, Fane Lozman, whose floating home was towed away and destroyed by the City of Riviera Beach after Lozman failed to pay his docking fees. Under federal law a vessel may be seized if the vessel’s owner fails to pay certain debts incurred by the vessel, for example dockage and fuel fees. Lozman argued that his floating home was not a “vessel,” and therefore the federal law did not apply. The Supreme Court, held that Lozman’s floating home was not a “vessel,” and therefore the city had no right seize it under the admiralty jurisdiction.

Prior to Lozman the general rule was that almost anything that floated and moved on the water could be classified as a “vessel” unless it was permanently attached to land. In recent years dry docks, oil rigs, and even floating casinos were classified as “vessels” and subject to the same rules and regulations as seagoing ships.

The Supreme Court’s new rule employs a “reasonable observer” test – a structure is not a “vessel” unless a reasonable observer would consider it designed to a practical degree for carrying people or things over water. Thus Lozman’s floating home, which had no means of propulsion or steering, and which looked in every respect like a house except for the fact that it floated, was not a “vessel.” In future cases, courts will have to consider the physical characteristics of a structure to determine whether it is a vessel. Courts will be more likely to call a structure a “vessel” if it has design characteristics to help it move through the water; factors like whether a structure has self-propulsion or a shaped hull, and whether it “looks” like a boat to a reasonable observer, will be important in these determinations.

As Justice Sotomayor points out, the court’s decision of not remanding the case for more factual findings completely destroys the well established principles of maritime law in the US. The Court never stated the reasons why Lozzman’s home is not a vessel and overturned established precedent that defined what is a vessel for the lower courts to proceed on. According to the Justice “[m]any of these deci­sions [when] assessing the crafts before them looked carefully at these crafts’ structure and function, and determined that these ships had capabilities similar to other long­ established vessels, suggesting a significant maritime transportation function.” The Courts decision now bypasses established precedent and muddies the waters of how members of the maritime industry define a vessel. Before the courts analyzed vessels against an industry standard. Now we will ask the average person to tell the industry what they believe is a vessel. By not clearly defining what makes Lozman’s vessel a house, the court leaves a vacuum in what was once a well established principal.

This landmark case has some major implications. First, the National Marine Bankers Association thinks this is bad news for the marine lending industry. Strong federal protections, like the Ship Mortgage Act and the Maritime Lien Act, protect marine lenders when they loan money to buy vessels. If structures like Lozman’s home are not “vessels,” then these federal protections go away and lenders will be exposed to more risk. The NMBA is worried that lenders will stop giving loans for structures like floating homes and oil rigs if they’re not sure whether these protections will be available. Even worse, if a vessel is re-characterized as a non-vessel, a marine lender could lose their security interest in it, making it much tougher to recover their investment.

On the other hand, the new rule is good news for owners and operators of floating buildings like casinos and hotels. These structures are normally classified as “vessels” even though they operate more like their land-based counterparts and rarely, if ever, move on the water. Lozman makes it more likely that these structures will not be classified as vessels, and therefore not be subject to the heightened federal regulations which apply to ships. On the other hand, if floating buildings are not “vessels” then employees of these operations – everyone from blackjack dealers to carpenters – will no longer be able to benefit from the additional protections afforded by federal law to workers on ships.

Last is the reason the case came before Court in the first place, taxes. Most owners of house boats get an added tax protection of owning a vessel, rather than real property. Under the Court’s holding, any vessel deemed to be a “house”, or by extension a building rather than a vessel, it will become real property. Unlike vessels that are taxed by the state one time only, real property is taxed annually. As Sotomayor points out, in Lozman’s case the house was appraised at only $17,000, thus the annual property tax bill would be low. However, imagine a floating dormitory. A 140 foot vessel has much large tax implications when turned by the courts into a “house”. It will not be long before State legislatures gladly extend the reasonable observer standard to bring the houseboat under real property tax jurisdiction. Because to a reasonable observer, a houseboat is a house on water, that happens to move from time to time. According to the decision in Lozman, movement from place to place is not enough to convey the status of a vessel.

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