RMS Titanic: A Legal Update 2

Court's Opinion

The Fourth Circuit Court of Appeals in Richmond, Virginia confirmed on 12 April 2002 that RMS Titanic Inc. (RMST), a salvage and exhibition company based in Atlanta, Georgia, has neither title to artifacts it has retrieved from the wreck of the sunken luxury liner Titanic, nor the right to sell any of these artifacts without court approval. [1]

Background [2]

The federal court in Norfolk, Virginia named RMST exclusive salvor-in-possession of Titanic on 7 June 1994, on the understanding that RMST would keep all recovered artifacts together as a single collection, maintain them on public display, and have any sale of the artifacts approved by the court. RMST has retrieved 6,000 artifacts from the Titanic debris field [3] during six expeditions to the wreck site. Further, it has mounted Titanic artifacts' exhibitions around the world, attracting nine million people.

RMST announced in 2001 that it was in financial difficulties and that it planned to sell off artifacts in order to improve its economic position. The company claimed that it had absolute ownership of the artifacts and was therefore not subject to the court's jurisdictional oversight. RMST had hoped to sell artifacts to a non-profit foundation headed by RMST president Arnie Geller, and to a museum in Belfast, Northern Ireland, where the ship was built.

The federal court issued an order on 26 September 2001, confirming that the sale of individual artifacts recovered from Titanic was unacceptable. RMST appealed the order two weeks later. The court then entered another order on 19 October 2001, amending its September order and explaining its position and previous orders. RMST also appealed the October order. Both orders of the court were sua sponte. [4] Oral arguments in the appeal were heard on 25 February 2002 and the judgment rendered in April. [5]

Opinion Analysis

In a unanimous decision, [6] the court held that RMST had a fundamental misunderstanding of its role as salvor-in-possession. The court proceeded to examine American case law on salvaging, acknowledging that salvors do not receive title to property salvaged. The court further stated that salvors essentially operate as agents for the owner, and are therefore entitled to a reward for their efforts from the owner or from the property salvaged. This reward is provided as an incentive to salvage, and courts of admiralty have enforced claims to this reward for centuries. The principal method of enforcing a salvor's reward is by a lien in the property saved. The lien arises from the moment the salvaging is performed. The court said:

Such liens are a temporary encumbrance of the property saved, lasting only until payment of the salvage reward can be made. [7]

But the salvor can obtain title to the property in certain instances. Under salvage law, if sale of the artifacts will not recoup the costs of the salvaging, RMST might, at the court's discretion, be entitled to absolute title in the property. [8] The court pointed out:

[T]he salvor has only a lien on the property which may, upon execution or foreclosure and in the discretion of the court, be satisfied by the court's conveying title to the salvor after the court determines that the appropriate amount of award cannot be satisfied by a sale of the property. (...) Once the lien is executed and the salvor as lienholder is paid its reward, whether in money or in kind, the reward becomes the property of the salvor to do with what it wants. [9]

The court stated that, under salvage law, as long as the case remains a salvage case the lienholder could not assert a claim to title, even though title may ultimately be given to the salvor following execution or foreclosure of the lien. As well, a salvage case cannot be converted into a finds case unless there is clear and convincing evidence of abandonment. In this case, RMST pursued only salvage rights and the court declared that it was a salvor. The company was never declared a finder, so any suggestion that it obtained title to the wreck or artifacts is incorrect.

Many of the fundamentals of salvage law were overlooked by RMST in its arguments, and the court summed up the issue of ownership in the artifacts accordingly:

[T]he [federal] court gave RMST the exclusive right to salvage artifacts from the Titanic and to obtain a reward through enforcement of its salvor's lien in the artifacts. If and when RMST abandons its role as salvor or the court dispossesses RMST of that role, the unsalvaged wreck will remain as any other unsalvaged wreck at the bottom of the sea, subject to salvage service by others. (...) RMST is not entitled to a guarantee that it will remain in business as a viable company to conduct salvage services. Surely if RMST abandoned its efforts, others would take over. In this case, other potential salvors have unsuccessfully petitioned the district court to do exactly that. (..) And if no others were to do so, then the wreck of the Titanic would lie unsalvaged as it did for the first 75 years after it sank. [10]

While the original June 1994 order declaring RMST sole salvor-in-possession uses both salvage and finds language, [11] the appeal court stated that it was obvious that the lower court was applying salvage law instead of the law of finds. The Norfolk court could only convey possession and not title. In addition:

RMST's position that it was only the salvor is consistent with admiralty law's strong preference for recognizing persons who discover wrecks as salvors rather than finders. [12]

RMST's lien in the artifacts is not automatically converted into title to the artifacts. It must first complete it salvage service and then have its reward determined. Only after the reward is determined can RMST seek to enforce its lien against the artifacts. None of these necessary procedures had taken place in 1994 when the court declared RMST salvor-in-possession. Therefore the court could only have given RMST exclusive possession of the artifacts on a temporary basis pending further proceedings. A 28 July 2000 order confirmed the earlier June 1994 order. Since RMST never challenged the June 1994 order, July 2000 order, and a third one issued on 30 April 2001, all essentially repeating that the artifacts cannot be sold individually and must be kept on public display, it cannot now appeal the matter. The court explained:

In sum, while the language of the June 1994 order declaring RMST salvor-in-possession may have been ambiguous with respect to ownership of the artifacts, the contemporaneous understanding between the court and RMST at least put in doubt any claim to absolute ownership. More importantly, the court could not legally have awarded title to the artifacts to enforce RMST's salvage lien until the amount of the lien was decided and the value of the artifacts determined or evidence taken that the sale would produce less than the amount of the lien. As everyone understood, these determinations had not been made. Finally, the court construed its June 1994 order by its July 2000 and April 2001 orders, interpretations with which RMST agreed and which it did not appeal. Accordingly, we will not now permit RMST to take a few words from the June 1994 order out of their context -- both the context of that order and the context of the legal proceedings -- to claim that it was granted absolute title to the artifacts at that time. [13]

Conclusion

The Fourth Circuit court's opinion confirms that one critical but essential aspect of salvage law applies to RMST; it is not the owner of the artifacts. However, as salvor-in-possession, RMST has a lien on Titanic artifacts and is entitled to make a claim for compensation in accordance with the federal court's procedure. Any sale to satisfy this lien must be to a third party who is prepared to keep the artifacts together as a single collection and publicly display them. This later condition deviates from traditional salvage law and was instituted in recognition of the historical importance of Titanic.

While there is the potential for an appeal, RMST president Arnie Geller hinted that this is unlikely, saying "We're not sure we're interested in spending our business careers in court. We might try instead to pursue some entity that would be interested in acquiring (the artifacts) as a whole." [14]

The Fourth Circuit court also made clear in its opinion that RMST is not entitled to a guarantee that it remain in business. If RMST is not prepared or financially capable of carrying out its obligations as salvor-in-possession, another salvor could be appointed to fulfil that role. The company faces a dilemma. At a time when its shares are worth only 26 cents each, and the company has gone from $5 million worth of profit in 1999 to a loss in 2001, [15] RMST must continue to mount expensive salvage operations in order to maintain its position as salvor-in-possession. Its last expedition to the wreck site was in 2000, and RMST's plans for 2002 have not yet been announced.

RMST's problems were compounded within a week of the court's opinion, when a dissident shareholder filed a class action lawsuit in Norfolk against the company, claiming its leaders had engaged in fraud and racketeering, and had enriched themselves at the shareholders' expense. The shareholder also claimed that company executives violated shareholders' rights by refusing to let them vote at a 1999 meeting that led to a hostile takeover of the company. [16]

While the immediate future may look bleak for RMST, the company remains the exclusive salvor-in-possession of Titanic and has the right to apply to the federal court in Norfolk to sell the artifacts. However, it is important to note that, with the appeal decision confirming the lower court's orders of September and October 2001, it is now established that if and when a sale of the artifacts takes place, they will not be sold separately and will remain on public display as a collection for all to enjoy.

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