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August 14, 2002


The opinion of the court was delivered by: Buchwald, District Judge


Plaintiff Dessert Services, Inc. ("Dessert Services") brings this action against defendant Mediterranean Shipping Company, S.A. ("MSC"), claiming damages for a shipment of frozen desserts that thawed during carriage. As MSC has previously stipulated to liability, Dessert Services has moved for summary judgment against MSC on the issue of damages, arguing both that (1) damages should be measured by the sound market value of the goods at their intended time and place of arrival; and (2) the applicable pre-judgment interest rate is the New York statutory rate of nine percent. In its cross-motion,*fn1 MSC argues that damages should be measured by the replacement value and that the prejudgment interest rate should be the average annual T-bill rate. MSC also alleges that plaintiff failed to mitigate its damages and thus, that there is a genuine issue of material fact that prevents a grant of summary judgment on this issue. For the reasons set forth below, we find the proper measure of damages to be the replacement value and that the pre-judgment interest rate should be measured by the average annual T-bill rate. We further find that there is a genuine issue of material fact in dispute as to whether plaintiff mitigated its damages. Accordingly, plaintiffs motion is denied and defendant's cross-motion is granted.


Plaintiff is the exclusive United States distributor of "Bindi" Italian frozen desserts. Telephonic Deposition of Michelangelo Pinto held on December 3, 2001, ("Pinto Dep.") at 10. These desserts are imported from Italy and are distributed by plaintiff in the United States to high-end restaurants, hotels, catering services, and entertainment centers. Id. at 8. Dessert Service's headquarters is located in Totowa, New Jersey. Id. at 19. Plaintiff also has a branch office in Gardena, California, where the damaged shipment at issue was received. Deposition of Emelia O'Brien held on June 29, 2001, ("O'Brien Dep.") at 7. The Gardena branch office has a refrigerated warehouse facility where the frozen desserts imported from "Bindi" are stored before they are sold in the retail market. Pinto Dep. at 22-24. By placing periodic orders to Bindi in Italy, the Gardena facility maintains a substantial inventory of frozen desserts. Id. at 14. When a shipment of newly imported frozen desserts arrives, the desserts are placed in frozen storage for 30 to 60 days before they are sold to customers. O'Brien Dep. at 13-14.

On July 20, 2000, plaintiffs Gardena branch office received a shipment of frozen desserts that had been shipped from Milano, Italy under defendant's bill of lading. Pinto Dep. at 27. Upon arrival of the shipment, Dessert Services determined that the frozen desserts inside the shipping container had thawed during carriage and decided to reject the shipment. Id. at 34. These goods were temporarily stored and reviewed by salvage experts, and then all the desserts were destroyed with the exception of a cookie item that did not require refrigeration. O'Brien Dep. at 20, 25.

One day later, or July 21, 2000, Gardena's branch manager, Michelangelo Pinto ("Pinto"), ordered a number of items of replacement frozen desserts from plaintiffs Totowa facility. Pinto Dep. at 48. Plaintiffs Totowa facility was able to immediately fill the entire order. Id. at 49. It took approximately five to seven days from the date of order for the replacement frozen desserts to be transported by truck from plaintiffs Totowa facility to plaintiffs Gardena facility. Id. at 46. Over the next two to four weeks, plaintiffs Gardena office placed additional replacement orders with its Totowa office, all of which were able to be completely filled and received five to seven days later. Id. at 52-54. Plaintiff was able to fill all of its customers' orders for "Bindi" frozen desserts due to the size of the existing inventory in plaintiffs Gardena facility and the replacement of frozen desserts provided by its Totowa facility. Id. at 32.

Defendant admits liability for plaintiffs loss but the parties disagree about the appropriate measure of damages. Plaintiff claims a loss of $97,211.00, representing the fair market value as calculated from plaintiffs Price List at the time of delivery. Defendant claims that Dessert Services' losses should be limited to $30,926.29, the product cost of the "Bindi" desserts. Defendant also argues that the salvage value of $6,056.19 for the frozen desserts should be deducted from the $30,926.29. The costs not in dispute are the storage cost ($915.00), the destruction cost of the desserts ($1,150.00), the survey fees ($1,227.50), and the cross-country trucking fees incurred by shipping the frozen desserts from the Totowa, N.J. office to the Gardena, CA office.*fn2 Defendant also concedes liability for the freight cost of $5,370.00 and the customs duties of $1,033.33. Thus, in sum, plaintiff claims a total loss of $100,503.50*fn3 while defendant claims the loss should be limited to $40,622.12*fn4 less the salvage value.


A. Summary Judgment Standard

A reviewing court may enter summary judgment where there are no genuine issues as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The evidence presented must be viewed in the light most favorable to the non-moving party such that all ambiguities and inferences drawn from the underlying facts must be resolved in favor of the non-moving party. Celotex, 477 U.S. at 324, 106 S.Ct. 2548; Bay v. Times Mirror Magazine, Inc., 936 F.2d 112, 116 (2d Cir. 1991). The moving party bears the burden of showing that no genuine factual dispute exists. Celotex 477 U.S. at 325, 106 S.Ct. 2548. Once the moving party satisfies this burden, the burden shifts to the non-moving party, who must go beyond its pleadings and designate specific facts by use of affidavits, depositions, admissions, or answers to interrogatories showing that there is a genuine issue for trial. Celotex, 477 U.S. at 324, 106 S.Ct. 2548.

B. Standard for Measuring "Actual Loss"

The traditional measure of "actual loss" is the difference between the fair market value of the goods at the port of destination in their condition as shipped, and their value as damaged. Chicago, M. & St. Paul Ry. Co. v. McCaull-Dinsomre Co., 253 U.S. 97, 100, 40 S.Ct. 504, 64 LEd. 801 (1920). The theory behind this general rule is that typically, to award only replacement costs would "deprive a [plaintiff] of expected profit which he is on the verge of earning and do[es] not compensate him for what he would have had if the contract had been performed." Polaroid Corp. v. Schuster's Express. Inc., 484 F.2d 349, 351 (1st Cir. 1973).

There is, however, an exception to this general rule whereby the replacement cost is deemed to be the appropriate measure of damages. Illinois Cent. R.R. Co. v. Crail, 281 U.S. 57, 64, 50 S.Ct. 180, 74 L.Ed. 699 (1930). "The test of market value is at best but a convenient means of getting at the loss suffered. It may be discarded and other more accurate means restored to if, for special reasons, it is not exact or otherwise not applicable." Crail, 281 U.S. at 64-65, 50 S.Ct. 180. In cases such as this, "[t]he burden of proof is on the carrier [] to show that "special reasons' exist such that application of the market value rule will not result in a just measure of actual damages." Philips Consumer Elecs. Co. v. Arrow Carrier Corp., 785 F. Supp. 436, 441 (S.D.N.Y. 1992); see also Eastman Kodak Co. v. Westway Motor Freight, Inc., 949 F.2d 317, 319 (10th Cir. 1991) (same). Courts have found that "special reasons" rendering the market value rule inapplicable exist when the shipper can replace the shipment at cost and suffers no loss of profit. Philips, 785 F. Supp. at 441. The rationale is that the shipper has received the profit and thus should not be accorded more than full compensation for the loss it sustained. Id.*fn5

We find that MSC has met its burden of showing that special reasons exist that render the market rule inapplicable. Id. Defendant has shown that plaintiff replaced the shipment by substituting frozen desserts from the Totowa office and using its large existing inventory in the Gardena office. The Gardena office did not lose any sales and was able to fill all of its customers' orders for the frozen desserts. Further, as Pinto explained at his deposition, Dessert Services was able to restock its warehouses by ordering additional desserts in its next order from Bindi, and lost no subsequent sales. Plaintiff is not entitled to damages based on the market value because to award market value damages would result in a recovery greater than the actual loss suffered. Id. Rather, the appropriate measure is the replacement cost, which will place plaintiff in ...

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