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ANGLO EASTERN BULKSHIPS LTD. v. AMERON

July 8, 1982

ANGLO EASTERN BULKSHIPS LIMITED and ANGLO NORDIC SHIPPING LIMITED, Plaintiffs,
v.
AMERON, INC., Defendant


Abraham D. Sofaer, District Judge.


The opinion of the court was delivered by: SOFAER

OPINION AND ORDER

ABRAHAM D. SOFAER, District Judge.

 Plaintiffs in this action are Anglo Nordic Shipping Limited ("Anglo Nordic"), a Bermuda corporation, and its wholly owned subsidiary Anglo-Eastern Bulkships Limited ("Anglo-Eastern"), a British corporation. The defendant is Ameron, Inc., ("Ameron"), a California corporation. Ameron owns Amercoat Europa N.V., a Netherlands corporation engaged in the marine coatings trade. Plaintiffs seek substantial damages from defendant Ameron and its subsidiary Amercoat on four theories of liability -- negligence, strict products liability, breach of implied warranty of fitness, and strict liability for misrepresentations. Pre-Trial Order 4-7. Amercoat, though, is not a defendant in this case, and plaintiffs' motion at trial to amend their complaint to add Amercoat was improper and meritless. *fn1" Consequently, plaintiffs' claims must be decided in accordance with defendant Ameron's liability, and acts of Amercoat for which Ameron is not responsible afford plaintiffs no basis for recovery.

 I. Factual Background

 On approximately June 2, 1970, Anglo-Eastern contracted with Swan Hunter Shipbuilders Limited ("Swan Hunter") for the construction by Swan Hunter of two nearly identical ships to be used to carry oil and other products. Anglo-Eastern chartered the planned vessels to its parent Anglo Nordic in July 1970. In January 1971, Anglo Nordic time chartered the planned vessels to Eurochem Shipping NV ("Eurochem"), a Netherlands corporation. Because Eurochem wished to transport chemical cargoes, plaintiffs ordered Swan Hunter to construct the ships as chemical carriers. The time charter between Anglo Nordic and Eurochem provided that the tanks in the new vessels would have coatings capable of carrying all the chemicals in Amercoat's product suitability list of 1970, which was appended to the agreement and expressly incorporated.

 To carry chemicals safely, the storage tanks on a ship must be specially coated. An effective coating serves two important purposes: it prevents the tanks from corroding and it protects the chemical cargoes from contamination by either the tanks or the remnants of previous cargoes. Different types of tank coatings are necessary to carry different types of chemicals. Originally, plaintiffs intended to coat two-thirds of the thirty-three tanks on each of its new vessels with an epoxy-based coating and one-third with a zinc-based coating. This ratio was changed at the request of Eurochem, however, so that twenty-four of the tanks on each vessel were eventually coated with a zinc-based material, and nine with an epoxy coating.

 The task of coating the storage tanks was subcontracted by Swan Hunter to Metnor Limited ("Metnor"), a British corporation that specialized in the coating process. Plaintiffs considered the coating products of a number of manufacturers before deciding to have Metnor coat the tanks with products made by Amercoat. The zinc-based coating plaintiffs eventually chose was Dimetcote-4 ("Dimetcote"), and the epoxy coating chosen was Amercoat 64/66 ("A-64/66"). Dimetcote is an inorganic substance generally used to coat tanks that will carry neutral solvents but not acid or alkaline materials. A-64/66 is an organic coating best used to carry alkalines and sometimes used for acids, but generally not used to carry neutral solvents. Amercoat, like other manufacturers of coating products, provided potential customers and actual purchasers with detailed information about the types of chemicals that could be safely carried in tanks coated with a given substance. Amercoat's product suitability lists and technical data sheets also contained the limitations, if any, that Amercoat placed on the carriage of approved chemicals in tanks coated with the products it sold. Plaintiffs were provided with such documents prior to their decision to use Amercoat products. PX 229:RN at 133-35, 137. *fn2"

 Tank coatings must be properly applied and cured before any chemical cargo can be carried; otherwise, the coating will fail to prevent corrosion and cargo contamination. "Curing" is the process by which a coating, after it has been applied, becomes fully capable of performing its protective functions. See Tr. 505. Curing is accomplished in a number of ways, including the introduction of heat, water, or other chemicals into the tanks. The curing process can be lengthy, and it continues even past the time when the tank is ready to carry certain chemicals. Some cargoes, in fact, may promote the curing process and are sometimes carried on a vessel's first voyage with that purpose in mind. Moreover, careful tank maintenance and restrictions on the carriage of certain chemicals are necessary to ensure continued coating effectiveness.

 Swan Hunter delivered the CHEMICAL EXPLORER to plaintiffs on May 4, 1972. Plaintiffs then attempted to deliver the vessel to Eurochem pursuant to their charter agreement, but Eurochem refused to accept the vessel, claiming that the ship's tanks might not be ready to carry the cargoes designated as proper in the charter party. The next day, however, Eurochem accepted delivery after expressly reserving certain rights. Among other things, Eurochem took the position that the Dimetcote tanks were not clean and were not "properly cured for the carriage of methanol and other low molecular weight solvents and that the Amercoat 64/66 tanks [were] not properly cured for the carriage of any chemicals." DX 20.

 Swan Hunter delivered the CHEMICAL VENTURER to Eurochem on September 4, 1972. Amercoat assured plaintiffs that the coatings on all the tanks on this ship had been applied and cured in accordance with their instructions, and that the tanks were ready to accept cargoes listed in Amercoat's June 1971 product suitability list. PX 97. Eurochem accepted delivery.

 The subsequent history of the Dimetcote and the A-64/66 tanks on the CHEMICAL EXPLORER and the CHEMICAL VENTURER reveals that there were serious problems with the tank coatings on both vessels, particularly on the former. Plaintiffs commenced this action in 1977 to recover damages for repairs to the coatings and for the time the vessels were out of service. See Pl. Trial Brief 8-11; Pl. Post-Trial Brief 42-62.

 II. Governing Law

 Defendant argues that English law should govern this lawsuit. Both the vessels involved sail under the flag of Great Britain. Much of the allegedly negligent conduct occurred in Britain or Europe, including the coating applications and the development and issuance of Amercoat's product suitability lists. Plaintiffs are corporations organized under the laws of England and Bermuda, and they do business in England and Scotland as well as in New York. The relevant contract -- to coat the tanks -- was made and carried out in England. Most of the participants in the alleged tort are European. And plaintiffs have themselves expressed a preference for British law in other contexts. See generally Hellenic Lines Ltd. v. Rhoditis, 398 U.S. 306, 26 L. Ed. 2d 252, 90 S. Ct. 1731 (1970); Lauritzen v. Larsen, 345 U.S. 571, 97 L. Ed. 1254, 73 S. Ct. 921 (1953).

 Plaintiffs correctly contend, however, that a weighing of all the relevant factors makes the application of American law proper in this case, as Judge Werker earlier assumed. Plaintiffs carefully note:

 
The "wrongful acts" complained of herein comprise defendant's misrepresentations concerning the products which could be carried in tanks coated with their products and/or defendant's negligent testing of the products in question and/or failure to test and/or failure to be guided by test results.

 Pl. Post-Trial Reply Brief 5. Defendant Ameron, in short, is not being sued for the acts of its subsidiary Amercoat, except to the extent those acts were adopted by Ameron as its own. Therefore, the allegedly wrongful acts in this proceeding are those of an American company, done to the detriment of Anglo Nordic, an American-based corporation.

 The flag is entitled to little weight, because the flag chosen for the vessels was one of convenience, not one that reflected the parties' allegiance; in this case, the parties are as strongly connected to this jurisdiction and its laws as they are to Britain and its laws. See Grivas v. Alianza Compania Armadora, S.A., 276 F.2d 822, 824-25 (2d Cir. 1960); Bartholomew v. Universe Tankships, Inc., 263 F.2d 437, 439 (2d Cir.), cert. denied, 359 U.S. 1000, 3 L. Ed. 2d 1030, 79 S. Ct. 1138 (1959). The place of contract is entitled to little weight in this analysis, because plaintiffs are suing in tort, not in contract. Likewise, the place where the coatings were applied has little bearing on defendant's liability. Plaintiffs' argument on this point is convincing, and it is significant in that it properly describes the limits of the claims that plaintiffs have made:

 
The relevant events in the case in suit had nothing to do with the execution of any contract; in fact, the contracts which were eventually executed were not between the parties to this law suit. The most relevant events, of course, are those which took place in the United States prior to the making of any contract.
 
Defendant urges that the negligent acts complained of have a European cast. Certainly plaintiffs agree that there were many negligent Europeans, most of whom worked in Holland and not in England. What seems to have escaped defendant is that plaintiffs have and are now urging that defendant was initially negligent in adopting and ratifying the negligently prepared Products Suitability Lists and other literature issued by its European subsidiary. These lists, as well as catalogues and brochures were relied upon by plaintiffs' representatives in deciding to have their vessels' tanks coated with Amercoat 64/66 and D-4.

 Pl. Post-Trial Reply Brief 7-9 (footnotes omitted). Given this theory of plaintiffs' case, the law of the United States, rather than the law of the flag, is the proper law to apply.

 III. Vicarious Liability for Acts of Amercoat

 Defendant contends that it cannot be held liable for the acts of Amercoat because plaintiffs have failed to prove that Ameron dominated Amercoat to the extent legally necessary to make it responsible for the acts of its subsidiary. Plaintiffs correctly respond that this issue is not actually presented. Plaintiffs do not contend that defendant is vicariously liable for the acts or omissions of Amercoat, but only for defendant's own acts or omissions. This case is not simply an attempt to hold a parent liable for the tortious acts of its subsidiary.

 Plaintiffs allege that Ameron was involved, sometimes intimately, sometimes tangentially, with many of the activities that gave rise to this lawsuit. The coating products were manufactured by Amercoat pursuant to a licensing agreement between Ameron and Amercoat. See PX 30. Ameron developed the original formulas for the coatings and provided them to Amercoat. PX 234:ND at 17-18; Tr. 554. The products were packaged in containers bearing a trademark registered by Ameron. PX 123; Tr. 497. Ameron and Amercoat were in constant contact regarding coating products, PX 222:JV at 38-42; Tr. 812-15; and Ameron was directly involved in the development and publication of the product suitability lists ("PSLs") involved in this dispute, PX 219:JR at 19-22. Although Ameron lacked day-to-day control over the operations of Amercoat, its approval was required for all major financial undertakings, managerial changes, and corporate policy decisions on all claims arising out of use of Amercoat products. Ameron sales representatives made the first attempts to convince plaintiffs to use Amercoat products on the CHEMICAL EXPLORER and the CHEMICAL VENTURER. Under these circumstances, Ameron may not escape liability by asserting its independence from its subsidiary. The issue in the case is whether Ameron was sufficiently involved in the alleged breaches of duty, and had sufficient control over its wholly owned subsidiary with respect to the activities involved in this lawsuit, to be held liable for its own acts or omissions, including any failure to exercise the control it had over Amercoat. See E.I. du Pont de Nemours and Co. v. McCain, 414 F.2d 369, 372-73 (5th Cir. 1969).

 Plaintiffs' claims are based almost entirely on alleged deficiencies in the PSLs issued by Amercoat, which they claim were adopted by Ameron. The evidence at trial established that Amercoat was primarily responsible for product testing and for the formulation of PSLs. But Ameron personnel closely followed Amercoat's operations, advised on everything from testing methods to the terms of the PSLs, and in fact could (and occasionally did) control both the testing process and the contents of PSLs. When Ameron sold coating products manufactured in the United States, and when it presented Amercoat products for sale, the PSLs used by Ameron were those prepared by Amercoat, under Ameron's ultimate supervision. No other PSLs existed. In fact, in recommending the products plaintiffs eventually chose, Ameron personnel gave plaintiffs Amercoat's PSLs. Ameron therefore was or should have been aware of, and could have corrected, any deficiencies in Amercoat's product testing and representations to purchasers. Consequently, Ameron is responsible for such deficiencies.

 IV. Breach of Duty

 Plaintiffs' arguments are founded upon four theories of liability: negligence, strict products liability, breach of implied warranty of fitness for intended use, and strict liability for misrepresentations. See Pre-Trial Order 4-7; Pl. Post-Trial Brief 104-15; Pl. Post-Trial Reply Brief 44-45, 89-91. Each theory requires proof not only of causation but of defendant's breach of some duty it owed to plaintiffs. Plaintiffs have failed to prove the existence and breach of a duty under any of the four theories.

 Under plaintiffs' negligence theory, defendant owed a duty to exercise reasonable care in the testing and representation of its products. See W. Prosser, The Law of Torts 644-45 (4th ed. 1971). Under the strict products liability theory, defendant owed plaintiffs a duty to sell tank coatings that were not "in a defective condition unreasonably dangerous" to plaintiffs' property. Restatement (Second) of Torts § 402A (1977). If, as plaintiffs urge, the duty is defined without the "unreasonably dangerous" requirement, then defendant's duty under the strict products liability theory was simply to provide a product that was not defective; that is, a product that was "reasonably fit, suitable and safe for its intended or reasonably foreseeable purposes." Pl. Reply Brief 89-91 (quoting Dawson v. Chrysler Corp., 630 F.2d 950, 956-57 (3d Cir. 1980), cert. denied, 450 U.S. 959, 67 L. Ed. 2d 383, 101 S. Ct. 1418 (1981)). Under plaintiffs' implied warranty theory, defendant owed plaintiffs a duty, like that under the strict products liability theory, see Merced v. Auto Pak Co., 533 F.2d 71, 75 (2d Cir. 1976); Basko v. Sterling Drug, Inc., 416 F.2d 417, 427 (2d Cir. 1969); Dawson v. Chrysler Corp., supra, 630 F.2d at 955, to provide a product fit for its intended use. Finally, under plaintiffs' theory of strict liability for misrepresentation, defendant owed plaintiffs a duty to avoid any material representations on which plaintiffs could and did justifiably rely. Restatement (Second) of Torts § 402B (1977).

 Defendant does not contend that plaintiffs may not properly allege negligence and breach of an implied warranty of fitness. See Compania Pelineon de Navegacion, S.A. v. Texas Petroleum Co., 540 F.2d 53, 55 (2d Cir. 1976), cert. denied, 429 U.S. 1041, 50 L. Ed. 2d 753, 97 S. Ct. 741 (1977); Montgomery v. Goodyear Tire & Rubber Co., 231 F. Supp. 447, 451 (S.D.N.Y. 1964). Defendant argues, however, that in the circumstances of this case plaintiffs have no cause of action for strict liability under section 402A of the Restatement. Although a strict products liability cause of action is, as a general rule, cognizable in admiralty, see Pan-Alaska Fisheries, Inc. v. Marine Construction & Design Co., 565 F.2d 1129, 1134 (9th Cir. 1977); In re Marine Sulphur Transport Corp., 312 F. Supp. 1081, 1102 (S.D.N.Y. 1970), aff'd in part, rev'd in part sub nom. In re Marine Sulphur Queen, 460 F.2d 89 (2d Cir.), cert. denied, 409 U.S. 982, 34 L. Ed. 2d 246, 93 S. Ct. 318, 93 S. Ct. 326 (1972), a number of strong reasons support defendant's contention.

 Plaintiffs claim damages only for repairs to defendant's product and for loss of profits while repairs were being made, not for damage to other property or for personal injuries. See Pl. Trial Brief 8-11; Pl. Post-Trial Brief 42-62. The majority of jurisdictions follow the rule of Seely v. White Motor Co., 63 Cal. 2d 9, 403 P.2d 145, 45 Cal. Rptr. 17 (1965), and deny recovery in strict liability for such losses in a commercial setting. See Jones & Laughlin Steel Corp. v. Johns-Manville Sales Corp., 626 F.2d 280, 287 & n.13 (3d Cir. 1980); Sioux City Community School District v. International Telephone & Telegraph Corp., 461 F. Supp. 662, 664 (N.D.Iowa 1978); Moorman Manufacturing Co. v. National Tank Co., 91 Ill. 2d 69, 435 N.E.2d 443, 61 Ill. Dec. 746 (1982); Note, Economic Loss in Products Liability Jurisprudence, 66 Colum. L. Rev. 917, 937-42 (1966). Some courts deny recovery in these circumstances on the theory that the product is not "unreasonably dangerous" where, as here, the damages claimed are only for the product's failure to perform as hoped and for economic consequences, and do not result from an unexpected, sudden occurrence such as an explosion or breaking apart of the product. See Ebasco Services, Inc. v. Pennsylvania Power & Light Co., 460 F. Supp. 163, 223-25 (E.D. Pa. 1978); Moorman Manufacturing Co. v. National Tank Co., supra, 91 Ill.2d 69. Compare The Pocahontas, 109 ...


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