As you’ll have seen in Part 1, the Atocha shipwreck salvage story is a humdinger. It has it all: adventure, wealth, greed, betrayal, violence . . . constitutional interpretation . . . civil procedure . . .
When you’re up to your a** in alligators (or allegations, or litigators), you may not notice the mosquitoes right away, but they’re biting you all the same. While all the federal-court Atocha lawsuits were working their way to the Supreme Court and back, Treasure Salvors, Inc. (TSI) had several investor-contract disputes demanding its attention as well, mostly in state court. Most of theopinions were unpublished or outside the scope of my database subscriptions, and I welcome comments from anyone who knows more about them.
Investment in treasure hunting is akin to venture capital. An investor contributes fixed sums (or in-kind contributions such as equipment and labor) that the venture needs for its operations. In return, the investor is entitled to a share of the profits, if such profits materialize. The potential return can be high, but so are the risks; for every one who strikes it rich, many others lose it all.
Sometimes a venture does succeed, but only after more time and expense than it originally estimated. When this happens, the initial group of early investors is often joined by different later investors in successive “rounds of funding.” This is where TSI’s investor contracts differed from the more familiar equity arrangements used by most of today’s tech start-up equity arrangements.
Tech start-up equity is “diluted” by successive rounds of funding; the early investors retain an interest in the company whose worth depends on the company’s profitability, but their proportional interest (though not always its worth) decreases with later rounds of funding unless they also invest more during those rounds. For example, suppose WhizKid starts a tech company to build and sell the revolutionary mousetrap he invented. His mom agrees to help fund him in the beginning, so he sets up WhizKid, Inc. and has it issue 500 shares of stock. WhizKid sells his mom 100 shares in return for her investment, giving her a 25% interest in the company (100 out of a total 500 shares). However, if WhizKid runs out of money before he can manufacture and distribute enough mousetraps to turn a profit, he may issue another 500 shares and sell them to Mr. Angel for more operating capital to get him over the hump. If Mom doesn’t buy more shares at this point, her 100 shares now represent only a 10% interest in the company (100/1000). Later, if it turns out that the biggest market for the mousetraps is in Brazil where hordes of mice are fleeing the shrinking rainforest for the cities, WhizKid may need to issue 1,000 more shares and sell them to BigVC for the money to set up the export structure. WhizKid’s mom now owns only 5% of the company (100/2,000) unless she buys more shares. Her shares will probably be worth more actual money if the company captures the Brazilian market, so maybe she doesn’t mind. Here, as long as Mom holds onto her shares and the company exists, she continues to own an interest in the company, although her voting power decreases as her shares are “diluted” (i.e., as more shares are issued to later investors).
TSI’s investment contracts were different because they exchanged “time in the game” for fixed investment amounts. The contracts expired on fixed dates, and an investor who contributed a given amount was entitled to a percentage of treasure recovered before the contract expired. The contracts could usually be extended if the investor contributed more, but once the contracts expired, the investor was no longer entitled to treasure found afterward.
TSI looked for the Atocha for many years, finding encouraging bits and pieces here and there. The first silver bars conclusively identified as belonging to the Atocha were found in 1971, the ship’s cannon in 1975, her sister ship the Santa Margarita in 1980, and the “motherlode” of treasure in 1985. Seemingly, with each new find, investors whose contracts had expired earlier hired lawyers to scour the language of the contracts for any possible indication that the contracts hadn’t “really” expired – and off to court they went.
- Gaines v. Treasure Salvors, Inc., 339 So.2d 1184 (Table) (Fla.App. 1976) was an appeal dismissed without opinion, and the opinion below may have been unpublished. The following year, Gaines v. Treasure Salvors, Inc., 352 So.2d 929 (Fla.App. 1977) was heard by the Appeals Court. Gaines had invested $1,000 in TSI’s Atocha search in 1968, in return for 1% of any treasure discovered during that year. In 1969 the contract would terminate, and if the venture was not profitable Gaines would take title to some antique coins TSI had put up as collateral. After a year, TSI sent Gaines two letters saying the contract had expired, the venture was not profitable, and Gaines could keep the coins. Gaines did not respond to either letter, but did keep the coins. In 1975, after TSI found the Atocha, Gaines filed suit for breach of contract. Not only had the contract clearly expired, but the statute of limitations had also run; the court affirmed the trial court’s summary judgment for TSI.
- Johnson v. Treasure Salvors was contemporaneous with the Atocha cases, but the timing may have been coincidental. An American Heritage article mentions a Bob Johnson who, along with TSI, helped Kip Wagner hunt treasure from the 1715 wrecks of the Spanish Plate Fleet off the San Sebastian River near Ft. Pierce, FL in the early 1960’s. If this was the same Johnson, the dispute might have been about that operation rather than the Atocha salvage. However, Johnson is a fairly common name. The Florida Supreme Court denied certiorari (declined to hear a further appeal). Johnson v. Treasure Salvors, Inc., 374 So.2d 99 (Table) (Fla. 1979). The lower court cases might not have been published.
- Parera v. Treasure Salvors, 476 So.2d 686 (Table) (Fla.App. 1985). This appeal was dismissed, the trial court opinion was unpublished, and not even speculative information seems to be available. Anybody?
- Treasure Salvors, Inc. v. Tilley, 534 So.2d 834 (Fla.App. 1988). The Tilleys contributed $12,500 to the hunt for the Atocha and Santa Margarita in 1972. A contract with TSI gave them rights to a 0.25% interest in treasure recovered from the lease area near Marquesas Key during the term of the contract. Paragraph 3 of the contract stated that TSI would continue salvage operations in the area “until Jan. 1, 1975, or until operations are no longer profitable.” Paragraph 9 stated that the contract would expire on Jan. 1, 1975, unless mutually extended in writing. The main Atocha find occurred in July 1975; luckily for the Tilleys, they had extended the contract to Jan. 1, 1979. The trial judge found ambiguity in the contract, construed it against the drafter (TSI), and found that the contract would not expire until the salvage operations were no longer profitable. This would have entitled the Tilleys to a much larger share, including the 1985 gold-bar bonanza. The appeals court reversed, however, finding no ambiguity to construe against the drafter. It reasoned that if Paragraph 3 controlled the duration of the contract, Paragraph 9 would be meaningless; judges presume that everything in a contract is there for a reason. However, if Paragraph 9 controlled the duration, Paragraph 3 would still mean something; it provided an “out” in case the salvage operations ceased to be profitable before January 1975.
- DiLucia v. Treasure Salvors, Inc., 713 F.Supp. 1425 (S.D. Fla. 1989). DiLucia invested an unpublished sum with TSI in Feb. 1976 for 0.8% of any treasure recovered before the contract period and the same percentage of “all treasure recovered from the Atocha site.” The contract expiration date was mid-December of the same year; it provided that its term could be extended for an additional $10,000 investment, but that option was not exercised. The Appeals Court held that the only way to make sense out of the contract as a whole was to interpret “all treasure recovered from the Atocha site” as all treasure recovered from the Atocha site before the expiration date.
- The Eleventh Circuit affirmed an unpublished ruling without opinion in DiLucia v. Treasure Salvors, Inc., 885 F.2d 878 (Table) (11th Cir. 1989).
Again, TSI won again and again, but it still cost them time. Most first-year law students with a semester of Contracts under their belts would look at these decisions and think “Well, duh! Who the heck took these cases?” There’s probably a lot more to these disputes than meets the eye when reading these fairly terse opinions. Nevertheless, the propensity of treasure hunters to court investors at large, uninhibited parties may have played a role in the contract-drafting process.