Maryland doubles down to permanently cap Vessel Excise Tax.

The Gambler’s Fallacy is the mistaken belief that if a coin-flip comes up “heads” ten times in a row, then it is more likely to come up “tails” on the eleventh flip.  It is a trap that ignores how probability operates. Our legislature is falling victim to a similar fallacy this session, as it works to make permanent the $15,000 cap on Maryland’s Vessel Excise Tax ("VET"). As of this writing, the bill has passed all hurdles in the legislature and is well on its way to becoming law by June.

The cap operates as a subsidy on vessel purchases over $300,000. The cap has no direct impact on the majority of Maryland boaters who buy and sell, as our boats are much less expensive. It will directly benefit a slim number of wealthy boaters.  This issue has been hotly debated among many sectors of the State’s marine industry since 2005. Supporters argue the cap will promote increased spending by the wealthiest boaters, and thus benefit the entire industry. Detractors say the cap will simply deplete income needed to support the Waterway Improvement Fund (“WIF”) and that the cap is a poor bet on an uncertain economic return.

Excise taxes are as old as our Country. Ten years after the British surrender at Yorktown, and only two years after the United States Constitution was adopted, the Congress passed the Distilled Spirits Tax of 1791, an excise tax on whiskey. The federal government had assumed war debt of the thirteen states and sought to offset the burden by taxing grain and spirits. The tax was unpopular, as whiskey was often used for direct trading, like currency. Larger distillers could easily pass the tax to consumers, but smaller distillers and frontier grain producers were directly burdened by the cash payment that could be as much as thirteen cents per gallon. Over three years simmering revolt roiled the frontier, particularly in southwestern Pennsylvania where tax collectors were attacked. President Washington dispatched a militia of close to 13,000 men, including many Marylanders, to preserve order and enforce the tax.

Maryland has collected a vehicle excise tax since 1933, largely without incident. Since 1966, the WIF has been the recipient of the 5% VET collected on the value of watercraft purchased or used in Maryland waters, and a smaller tax on all motor fuels. Through the WIF, our government improves and maintains the infrastructure necessary for safe public boating. The necessity and benefit of the WIF is not disputed by either side of the cap debate. Today, the WIF is funded solely by the VET. A cap on the tax is described as either revenue neutral, or a downright revenue drain. Only one side can be correct.

In 2011, excise taxes generated $15.4 Million for the WIF. In 2012, this declined to $14.2 Million. By 2013, the State Legislature adopted a temporary cap on the VET, with the bald hope of increased registration of high valued boats. In August 2015, the University of Maryland Environmental Finance Center issued an analysis of the cap, with only one concrete conclusion- the cap resulted in $588,000 of lost revenue over 2013 and 2014.

The analysis is coupled with several “may have” conclusions, which amount to little more than wishful thinking:

• The cap “may have” lead to increased registration of vessels worth $350,000 to $399,999, although “the net impact on VET revenue is estimated to be negative.”
• The increase in registration of vessels worth $400,000 or more “is likely due” to the cap, but “was not enough to offset the loss in VET revenue.” The increase is attributed to 60 additional registrations in this category.

The cap is justified largely for its claimed trickle down economic effect- it “may have” generated $1 Million in direct spending in the overall economy (citing a survey of “high valued” boat owners who averaged 25 trips per season), with a multiplier effect of $2.5 Million over two years. Instead of reading the data as a general negation of the benefits attributed to the cap, our Legislature has simply doubled down on the initial bet, making the cap permanent on the assurance that good things “may have” resulted from the temporary cap, and they may happen in the future.

With annual VET receipts between $14 Million and $15 Million, it is indisputable that the bulk of WIF revenue is derived from the purchase and registration activities involving vessels well below the $300,000 cap threshold. The cap can only be reasonably construed as a tax break for the wealthiest of boaters who already bear the least economic responsibility for maintaining our waterways. Meanwhile, the loss of revenue intended for the protection of public boating facilities and infrastructure will continue to decline, and the majority of State boaters will suffer.

On your next visit to play the slots, kindly nudge the legislator on the stool next to you. Suggest that it is time for him to go home-he’s playing with your money in a game where the odds remain unreasonably long.

Contemplating the sailing log canoe, a wake and the wet judge.

The winter months provide us time for vessel repairs, and reflection on how to become better boaters. As a lawyer, I tend to focus on risk-- the chance my activities might inconvenience or injure others and their property, or how the activities of others might impact me. Vessel operation has been widely discussed in the news over the last year, as Maryland set new records for boating fatalities and accidents.

It was an excessive wake case that caught my attention. I am less interested in the many reported cases involving intoxicated operators, perhaps because I see that as an intentional act of impairment that is readily avoided. But the excessive wake case falls in the category of bad things that can easily arise from innocent operational error. I know that I will not operate a boat while intoxicated, but I might certainly slip up and generate an excessive wake once in awhile. Aside from incurring the anger of nearby boaters, is there a greater risk?

Chesapeake Bay Log Canoes

In a widely reported case, a 58 foot cabin cruiser allegedly raced through a log canoe race course on the Chester River last July. A wake of two to four feet caused two log canoes to capsize- one of which belonged to a retired judge (read this Coastal Living article to learn about Chesapeake Bay log canoe sailing). The canoe reportedly suffered $1,800 in damage. The judge’s call to the State’s Attorney triggered an investigation by the DNR, which ticketed of the cabin cruiser’s operator. The operator hired a lawyer and took the case to trial in December, where he was found guilty of negligent operation and fined $320. After trial, he was offered probation before judgment—a deferred judgment that is not a conviction. 

The State’s Attorney issued a press release trumpeting the victory, not because it was such an important case in the grand scheme of criminal law, but because of the infrequency of trials on such issues. Or maybe that’s how to announce conclusion of a case involving a wet judge. The operator reportedly defended the case by claiming no knowledge of the race in progress, or the presence of the canoes in the area. A race tender had blasted a horn and signaled, but the operator claimed to have misinterpreted the signals, and simply made a slight course correction. But what if the case involved more than a capsized canoe, and the dunking of a retired judge? What if the 58 foot cabin cruiser had caused serious bodily injury or death? Imagine if the crew of the two canoes had drowned? 

There are at least two statutes for that situation. A vessel operator who causes death can face charges of manslaughter by vehicle or vessel, and criminally negligent manslaughter by vehicle or vessel. They sound very similar, but they are very different. 

The crime of manslaughter by vehicle or vessel requires proof of “gross negligence.” To obtain a conviction, the prosecution must show that the vessel operator was conscious of the risk to human life posed by his conduct, and he acted with “wanton or reckless disregard for human life.” This law has been around since 1941, and was extended to cover operation of boats in 1949. It is a felony and can be punished by up to 10 years in prison and a $5,000 fine. 

Criminally negligent manslaughter by vehicle or vessel requires proof of “criminal negligence.” The prosecution must show that the operators conduct created a “substantial and unjustifiable risk” to human life and that the failure to perceive that risk was a “gross deviation” from the standard of care that a reasonable person would exercise. This is a relatively new law, adopted in 2011. It is a misdemeanor and can be punished by 3 years in prison and a $5,000 fine. 

You can see that ordinary manslaughter is the more serious crime. It is more serious because it is charged where the operator is conscious of the risk posed by his boating operation. The criminal negligence statute does not require this recognition. It requires only that the operator should have perceived the risk, and that his conduct was far outside the boundaries of safe behavior, and thus the lesser penalty of 3 years. The operator convicted of criminal negligence also avoids the “felon” label, and retains the right to vote and to bear arms under the Second Amendment. 

We now turn back to the case of the wet judge and his sunken canoe. If the operator of the 58 foot cabin cruiser had no appreciation for the risk created by his four foot wake, it is unlikely he could have been prosecuted for ordinary manslaughter. But if the testimony at his trial revealed an exclamation like “I don’t care, let’s tear this up,” or words to that effect, then a four foot wake that capsized a canoe to cause a drowning would certainly support an ordinary manslaughter charge. I would estimate that the operator of the cabin cruiser spent at least $1,500 or more to defend the negligent vessel operation case, in addition to the $320 fine. Defense of a case involving death will cost you exponentially more, including your reputation and standing in the community. It really is much easier to throttle back, take in the sights, and give your neighbors a friendly wave.


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Bees on your boat?

We maritime lawyers know all about "reasonable care," and the duties owed by a boat operator to his passengers. And so I wrote this piece for a local boating e-magazine about a recent outing with a friend.

It's a stinger.

If you want to be a seaman, get in the boat!

This weekend is a big celebration of the 200th Anniversary of the War of 1812, here in Baltimore. It's a regular "Sailabration," with ships from all over, and lot's of self important people "speechifying" down and around Fort McHenry. All this fuss put me in a nautical mood, and I have always enjoyed maritime law more than any other area of my practice, so what better way to celebrate all those boats downtown than a few lines about some maritime law?

The Maryland Court of Special Appeals took a rare cruise into maritime law, launching the Dize v. Association of Maryland Pilots decision into the big pond of state court case law. Mr. Dize contracted silicosis of the lungs after his employer assigned him to sandblast the hull of a pilot boat owned by the Association of Maryland Pilots. To recover for his injuries from his employer, Mr. Dize sued in the Baltimore City Circuit Court (just a stone's throw from the Inner Harbor and the Chesapeake Bay). He lost on motion in the trial court, and he lost again, on appeal.

Now, it's not unusual for an injured worker to seek recompense from the boss. What is unusual in this case was Mr. Dize choosing to call him self a "Jones Act seaman," rather than a "longshorman," or just a regular 'ole "employee."  There's a difference, you see. He was seeking classification that has traditionally been granted our most imperiled maritime workers, a classification that would not have capped his recovery the way regular joes are limited by state or federal worker's compensation acts (you've heard the stories of scheduled injuries, and "what's a finger worth" after a dismemberment). The Jones Act seaman sues his employer for negligence, without the limitations of any scheduled recovery.  AND he gets to claim a daily stipend, called "maintenance and cure" even before he's won the case.  AND some contributory negligence on the part of the injured employee only reduces his recovery, it is not a complete bar, like it is in Maryland state law (at a recent Law Club meeting, I learned that Maryland is now in the minority of states where any amount of contributory negligence is a complete bar to recovery..that's another post for another day).

The federal "longshoreman," like the state worker, has limited recovery under the federal Longshore and Harborworker's Compensation Act. So, it's good to be a Jones Act seaman. I've litigated in all three areas, and Jones Act cases are, by far, the most fun (excluding the injured fellow, who usually would rather not be involved). I've learned so much cool stuff from crawling around vessels, including freighters, container ships, tugs, pilot boats, crab boats, and container cranes in Jones Act cases.

About 100 years ago, Congress created the Jones Act to protect the brave folks plying the high seas to bring us all those foreign goods we so deserve, called the Jones Act. This gave special protection to seafaring men and women injured in the service of our merchant fleet. After all, where would we be without our vanilla beans from Madagascar, or french wines, or bat guano from South America (really, look it up...Baltimore's port was built on this stuff!  In 1887, one island near the Dominican Republic shipped 462,000 tons of the stuff scraped out of 22 caves! And if you don't believe me, look at these 1899 log books, showing large tonnages of the stuff dropping on Baltimore's docks.) These guys deserve special protection.  After all, here's just a partial list of the bad stuff that can happen,compiled by another maritime lawyer:

• Loss of footing. Surfaces on any vessel may become slick due to exposure to ocean spray, rain, humidity or wet lines hauled aboard. When the ship is not properly equipped with non-slip surfacing that is maintained, these areas present a fall hazard that can and often do result in serious injury.
• Nets, lines and rigging. Rope, when not properly handled, is extremely dangerous. Feet and limbs can become entangled causing a fall or worse.
• Shifting cargo. When cargo is not properly secured, the movement of the ship can cause it to shift, creating the potential for a seaman to be struck or crushed.
• Lack of adequate railing. All stairwells and even some walkways require railing in order to allow workers to safely navigate them in high seas.
• Fall from height. Most vessels and offshore platforms have multiple stories. Improper railing, inadequate flooring or lack of safety measures such as improperly secured harnesses can result in a nasty fall.
• Fires and explosions. Ships and offshore drilling platforms require some heavy machinery to function; when sparks ignite, especially when combined with the occasional gas leak, workers can be burned by flame.
• Chemical burns. Contact with harsh chemicals due to improper training, incorrect storage or spills can cause serious and painful burns.
• Overexertion. Everyone has an idea of the limits of his or her own strength. Seamen are regularly asked to perform tasks that push those limits. When tasks go beyond the limits of physical endurance or strength, muscular and skeletal injuries can occur that may permanently damage a seaman’s ability to make a living.
• Decompression illness (DCI). Commercial divers execute extremely technical dives at extreme depths. These dives must be planned and executed exactly in order to avoid DCI (or “the bends”). When equipment fails or planning goes awry, divers are put in serious danger.
• Struck by a falling object. Cranes move large loads around barges, vessels and platforms. When cranes collapse or loads are improperly secured, workers on the deck below are in serious danger of being struck by the falling cargo.
• Malfunctioning equipment. Be it large machinery such as engines, cranes or drills, or hand held power tools such as saws or blowtorches, every maritime company has an obligation to ensure equipment stays in good working condition and that all workers are trained on its proper use. When machinery malfunctions, injuries ranging from cuts or burns to amputations may result.
• Improper supervision of loading and unloading. Longshoremen do much of the roll on/roll off operations, but seamen may assist in the process. High vehicular traffic and the coordination of the movement of large loads and containers create a number of dangers including being struck by a vehicle or load. These operations must be well supervised and coordinated in order to protect workers who are focused on a specific task.
• Electrocution. Exposed wiring, improper insulation and wet surfaces can lead to electrocution ranging from mild to severe.
• Radiation. Sealed and unsealed radioactive substances have a myriad of uses such as in cementing operations and density gauges. Exposure to an excessive amount of radiation can lead to radiation sickness, a serious condition requiring medical attention.
• Scaffolding collapse. When incorrectly constructed, scaffolding may collapse, causing injury to those upon and around the scaffold. Either a fall from great height or being struck by falling objects can lead to injury or death.
• Release of hydrocarbons. Hydrocarbon release can happen in liquid or gas form, both of which create explosion and fire hazards due to their flammable nature. Hydrocarbon inhalation can also cause pulmonary and neurological injury.
• Vessel collision. The seas are a busy place and vessels will on occasion collide. This presents a danger to seamen whether through the force of the impact or resultant complications such as fires or chemical spills.
• Getting caught in equipment. Winches are a good example of this potential hazard, as the winch drum can potentially snag body parts that get too close. Tasks that involve dangerous interaction with equipment or a lack of safety training, protocol and tools can lead to serious injury such as broken bones, soft tissue injuries or amputation.
• Improperly inspected enclosed spaces. Oxygen deficiency or flammable or toxic atmosphere can all occur in enclosed spaces aboard vessels. Before working in these areas, they must be inspected to ensure that the workers are not in danger.
• Falling overboard. A fall overboard can cause serious injury or death. The impact of the water is sometimes enough to render a person unconscious, leading to drowning. Non-fatal complications could arise from the fall including concussion, broken bones, spinal injury and hypothermia, not to mention the accompanying mental anguish.

This partial list should make it obvious why Congress gave these folks the right to sue their employer in negligence, if they could demonstrate their "seaman" status.  It is dangerous work.

But Admiralty and Maritime lawyers know all that, it's old hat. It's the fact that this decision boiled up out of the depths of Baltimore's Circuit Court that makes it interesting to me. You see, maritime cases are mostly filed in the United States District Courts. Jurisdiction over most anything dealing with international trade and commerce has drifted to the federal courts....except for the really cool "savings to suitor's" clause in the United States Constitution that guarantees certain claims for injury can still be brought in state court, at the sole election of the injured employee. It's rather empowering for the little guy. And where every other state court case that has related federal claims can be "removed" to federal court, the Jones Act case cannot. Chalk one up for the injured guy's forum selection.

And to make Mr. Dize's case even cooler, the Maryland Court of Special Appeals took some time to analyze U.S.Supreme Court law about what constitutes a "seaman." In a court that is normally swamped with criminal appeals of right from the entire state's trial court system, the law clerks must have been fighting over this one.

So what's the case hold?  Does it matter? Well, if you're injured while working on, or in support of a vessel, it sure does.  Maryland clearly adopted the Supreme Court's 30% rule, as described in Chandris v. Latsis.  That means roughly 1/3 of your time must be spent working on the boat if you want to earn Jones Act seaman status. The Supremes marked this off as a "rule of thumb," but anyone claiming status who spends less than 30% of his work time on the boat has to show a darn good reason to depart from this percentage.  One example that might work (it didn't for Mr. Dize) is the desk employee newly transfered to a vessel who is injured almost immediately in his new duties. He would not be able to demonstrate his Jones Act status using the 30% rule, but the nature of his recent assignment might save him from strict application of the rule.

And now I really want that Grady White I've been day dreaming about!  See you on the Bay!