June 5, 2009 1:31 PM

Covington Helps Spain Sink Salvage Claims in Shipwreck Suit

Posted by Brian Baxter

Odyssey Marine Exploration believed it had one of the most lucrative shipwreck discoveries in history on its hands in May 2007, when the Tampa-based treasure hunter announced it had recovered 17 tons of gold and silver artifacts from a secret Atlantic Ocean site codenamed the Black Swan.

The government of Spain disagreed. Claiming the Odyssey had actually discovered a 19th-century Spanish frigate called the Nuestra Señora de las Mercedes that had been sunk by a British warship, Spain sued Odyssey for violating Spanish heritage laws, and later seized the company's Gibraltar-based flagship.

Covington & Burling of counsel James Goold, who has a long history of helping Spain repel salvagers in search of riches from centuries-old Spanish galleons, uncovered export documents showing that Odyssey had flown two planeloads of Black Swan materials to a secure site in Florida.

Odyssey had filed a salvage claim to the Black Swan site in U.S. district court in Tampa, so that's where the litigation battle began. The combatants: Spain, Odyssey, and a host of others interested in a treasure estimated to be worth nearly $500 million.

And in an order handed down late Wednesday by U.S. magistrate judge Mark Pizzo, the court recommended that the case be dismissed for lack of jurisdiction and that property recovered from the Black Swan site be returned to Spain under the principle of sovereign immunity.

"More than two hundred years have passed since the Mercedes exploded. Her place of rest and all those who perished with her that fateful day remained undisturbed for the centuries--until recently," wrote Pizzo in his 34-page decision. "International law recognizes the solemnity of their memorial, and Spain's sovereign interests in preserving it."

If U.S. district court judge Steven Merryday affirms Pizzo's recommendation that the case be dismissed, it could leave Odyssey with only ten days to return the Black Swan bullion. Goold says Pizzo left no doubt in his decision that the Black Swan site was actually the final resting place of the Mercedes.

"The site of the [Black Swan] ship clearly matched the historical reports of where the Mercedes exploded and sank in 1804," says Goold, assisted on the case by Covington associates José Arvelo and Enrique Armijo. "The site had Spanish coins that were dated that year as well as cannons of which a frigate of that time would be equipped. The Spanish Navy did an analysis for me, which we compared to the actual GPS location, and it was a bull's-eye."

Pizzo's report is a devastating blow to Odyssey, which has tried to reform its swashbuckling image in recent years by partnering with the Discovery Channel for a television show called Treasure Quest. The hour-long weekly program chronicles how the salvager goes about its deep sea recoveries. Litigation is mentioned only in passing.

"We really didn't expect this," says a shocked Melinda MacConnel, Odyssey's general counsel. "For the magistrate to recommend dismissal of the case without even giving us the opportunity to cross-examine the witnesses presented by Spain is just not right. [Pizzo] thoroughly accepted the facts as presented by Spain and rejected those presented by Odyssey."

Both sides in the litigation argued their case through motion practice with no oral hearings. MacConnel says Odyssey wanted an evidentiary hearing to judge the credibility of the witnesses appearing in written statements, but one was never granted. It's not her only objection to Pizzo's decision.

"I think that the magistrate's report and recommendation ignored several key facts in the case, including the fact that we found no vessel at the Black Swan site, just a debris field," MacConnel says. "Even if the cargo that we recovered came from the Mercedes, the cargo itself is not necessarily sovereign immune property. We know that the vast majority aboard the ship was privately owned."

Beyond that, MacConnel says, Pizzo erroneously stated that the Mercedes was not on a commercial mission. In order for a vessel to enjoy sovereign immunity, MacConnel says that it must be on an exclusively noncommercial voyage. The legal reasoning: courts don't want sovereigns cloaking their vessels in immunity merely by calling them warships.

"The Foreign Sovereign Immunities Act, which Spain is arguing should be used to dismiss the case, has never before been used to deny a U.S. court admiralty jurisdiction over cargo that has been recovered from international waters," MacConnel adds. "That's a first. But I'm hoping that the [district] judge sees this error and rejects [Pizzo's] recommendation."

Odyssey is represented by a legal team that includes Blank Rome international and maritime litigation practice leader John Kimball, international environmental practice cochair K. Russell LaMotte from Washington, D.C.'s Beveridge & Diamond, and local counsel Allen von Spiegelfeld from 70-lawyer breakaway boutique litigation firm Banker Lopez Gassler in Tampa. (MacConnel says that Emory University School of Law professor David Bederman serves as a consultant to Odyssey's legal team.)

Pizzo also struck down claims by Peru--represented by former Bracewell & Giuliani partner Mark Maney in Houston. The South American nation seeks a stake in riches it claims originated in the country when it was a Spanish colony. Goold says Pizzo wisely chose to keep U.S. courts out of the realm of unraveling colonial disputes. (Twenty-five individual descendants of sailors who died aboard the Mercedes also filed claims; those, too, were struck down by Pizzo.)

MacConnel says Odyssey will object to Pizzo's report and recommendation. As part of that objection, she says, Odyssey will request a stay on any order directing a return of property to Spain until a final resolution of the case.

"This case is far from over--there are a lot of novel issues here," MacConnel says. "The admiralty court is a court of equity, but it's simply not equitable to direct Odyssey to turn over property to Spain that never belonged to it. It's crazy."

Lawyers expect Merryday to issue his ruling within the next few months.

 

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