## Facts

- The United States owned the steamship *Elkton* and placed it under an operating/agency contract with Atlantic Gulf & Oriental Steamship Co., Inc. (Atlantic Gulf), with voyage profits payable to the United States.
- Atlantic Gulf appointed Admiral Oriental Line (Admiral) as its ship’s agent in the Philippines to fit out and handle aspects of the *Elkton*’s voyage.
- The *Elkton* was lost in a typhoon with all hands.
- Cargo owners sued Admiral (and Atlantic Gulf) for the cargo loss; Admiral successfully defended but incurred litigation expenses.
- Admiral sought reimbursement of its defense expenses from Atlantic Gulf as its principal.
- Atlantic Gulf sought to shift liability for its own defense expenses and any sums owed to Admiral to the United States, asserting the United States was the principal for whose account the venture was conducted.
- The district court dismissed (1) Admiral’s libel against Atlantic Gulf (and Atlantic Gulf’s effort to bring in the United States) and (2) Atlantic Gulf’s separate libel against the United States under the Suits in Admiralty Act.

## Issues

1. Whether an agent who successfully defends a baseless suit arising from authorized acts in the principal’s business may recover reasonable defense expenses from the principal.
2. Whether a sub-agent may recover from its immediate principal, and whether the immediate principal may obtain indemnity over from the ultimate principal whose venture produced the claim.
3. Whether the sub-agent’s failure to tender the defense or give notice to the immediate principal bars recovery of defense expenses.
4. Whether procedural devices used—impleader under Admiralty Rule 56 and a separate action under the Suits in Admiralty Act—permit allocation of liability to the United States.

## Decision

- The Second Circuit reversed the dismissals and remanded.
- The court held that an agent compelled to defend a baseless suit arising from acts performed in the principal’s business may recover reasonable defense expenditures from the principal.
- Admiral, as sub-agent, could recover its defense expenses from Atlantic Gulf as its immediate principal.
- Atlantic Gulf could recover from the United States, as the venture’s ultimate principal, both its own defense expenses and any amounts it was required to pay Admiral.
- Admiral’s failure to notify Atlantic Gulf or tender control of the defense did not bar indemnity.
- The court recognized that the claims could proceed so that liability would ultimately be fixed on the United States through appropriate admiralty procedure, including the Suits in Admiralty Act and, in principle, Rule 56 impleader.

## Legal Principles

- A principal must reimburse an agent for reasonable expenses, including litigation costs, properly incurred in the course of authorized agency work.
- When a baseless suit arises from authorized conduct in the principal’s business and the agent successfully defends, the defense costs are chargeable to the principal as part of the venture’s necessary burdens.
- The indemnity obligation applies through a chain of agency: a sub-agent may recover from the immediate principal, and the immediate principal may seek indemnity from the ultimate principal whose enterprise generated the exposure.
- Notice or tender of defense is not a prerequisite to an agent’s claim for reimbursement of defense expenses where the agent reasonably defended to protect its own interests and the expenditures were incurred on the principal’s account.
- In admiralty, procedures permitting liability-over (including impleader) and statutory waiver routes for claims against the United States may be used to align substantive responsibility with the party for whose benefit the venture was conducted.

## Conclusion

The court held that reasonable defense costs from baseless cargo-loss litigation were indemnifiable as agency expenses: Admiral could recover from Atlantic Gulf, and Atlantic Gulf could pass liability to the United States as the ultimate principal that owned the vessel and took the voyage profits, without a notice-based bar to recovery.


Admiral Oriental Line v. United States, 86 F.2d 201 (2d Cir. 1936)